Over the years, I’ve worked for three businesses that have been sold while I worked for them. I’ve also worked on acquisition integration programmes. Business transfer is a complex and challenging time. So, I thought I’d share some thoughts that may be helpful if you find yourself managing a team in Finance when you discover that the business you’re working in is going to be sold.
I say that you may “discover” your business is being sold, because you may be brought into “the know” early in the process, before most people are aware. When a business is sold, the initial discussions about options and valuations, and potential buyers, are normally highly secretive. There’s good reason for this. From a people-perspective, it’s not fair to worry people with the uncertainty when you can’t give them the answers they need to allay their fears. It’s also true that the sale process can be hampered by management time being soaked up having to fend off questions that have no definite answer. From a business-perspective, the distraction caused by extended uncertainty over the ownership and strategy of the business can be damaging to business performance.
However, in Finance we have access to a lot of the data required to support a sale of the business. So, we have both a privileged and awkward position. It is privileged in the sense that business disposals are big strategic matters, and there’s a big responsibility to help the current owners (your current bosses) maximise value from it. It’s awkward in the sense that very often you will be at a management level where you will be expected to provide data and financial modelling, without being able to tell your team why you’re doing it.
You may have to ask your team for information and analysis that is unusual. But maintaining confidentiality is so important that you end up prevaricating and lying, or working from home or at the corporate headquarters a lot. Either way, some bright spark is bound to notice sooner or later that you and other managers are not acting normally.
If someone asks you the open question, “what’s going on?”, you could tell them that the directors are having some strategic discussions and need a lot of information to help them. If pressed, just say that it wouldn’t be right to give away any more, because no decisions have been made yet.
If you get asked, “are we being sold?”, you cannot say yes or no. You cannot even say it’s being considered. So, you have to lead back to some vague response like the one above. They may draw their own conclusions from your vagueness. But the important thing is that if you haven’t confirmed or denied anything, no one can say you told them.
One way of leading people off the scent, especially if it’s only one business unit that is being considered for sale, is to ask for more information than you really need. I did this once. I was asking for the P&L for a business unit because I knew the directors were considering selling it. So, I asked for a full comparative product profitability analysis. I could get what was needed out of it whilst looking like I was investigating something else.
Due Diligence Support
When the business is definitely for sale, the directors will be working with Corporate Finance advisors who will be responsible for ensuring fairness and confidentiality in selecting a buyer. This may still be a secret phase (with advisors and directors privately approaching potentially interested parties under non-disclosure agreements), or the directors may decide to announce the sale and ask for contact from potential buyers.
Again, the advisors will have asked for a suite of information that they can provide to every potential buyer to enable them to work out whether and what kind of offer to make. Finance will provide a lot of data for that, and you have to make sure it’s right. If assumptions are involved, be explicit about them.
As potential buyers go through the information they will ask questions. The Corporate Finance advisors collate these and the appointed co-ordinator (or project manager) within the business will decide who is best-placed to answer them. Finance almost always gets a lot of questions.
Provide whatever is asked for, but no more (even if you’ve prepared it already, just in case). At the end of the day, the due diligence process is all about potential buyers asking the right questions. So, let them ask for it. Or at least be guided by advisors on your side.
The Impact on You
It’s possible that even if you’re involved in providing information for Due Diligence, you may not be privy to the offers received or the names of the potential buyers. If you are in on this, you will be able to think through what the different scenarios may be. But if not, you should not be worried. When the buyer is selected and announced, you will have time to delve into what has been agreed in principle.
The first, most natural, question you will probably ask is, “what’s going to happen to my job and my team?” And it’s not wrong to expect an answer to that. Your current directors and the selected buyer should tell you as much as they can, and tell you what the uncertainties are. For instance, they may say, “all staff will be transferred with the business, but within a year an integration project will be kicked off which may lead to some rationalisation of products and support functions.”
At that point, or as things progress, you may decide you hate uncertainty (or you see the writing on the wall) and go off and get another job elsewhere. There are sometimes financial incentives (retention bonuses and/or enhanced redundancy packages) for you if you stay and see it through. Personally, I’ve always relished the opportunity to be involved in helping the transition and helping people through the transition. But there’s nothing wrong with bailing out. Indeed, since two of my four redundancies were after the disposal of a business I was working in, I do sometimes wonder whether my career may have been smoother if I hadn’t stayed each time until I was needed no more.
Fundamentally, do what is best for you. And don’t ever regret your decision. But if you stay, do your best for the business.
Who Am I Working For?
But that leads to a good question to ask at this stage. The key thing to understand, if you’re intent on staying around to see it through, is what is expected of you during the sale and transition process. And the initial question to ask in order to understand that is: Who am I working for?
The obvious answer to that is that before the deal completes you are still working for the seller of the business. Your responsibility is to help your current employer to maximise value for their owners/investors/shareholders out of the sale.
If it’s clear that you won’t be transferring to the new owner with the business, and there’s either a good redundancy package or a job waiting for you elsewhere within the seller’s wider business, that’s an easy mindset to have. But do bear in mind that the seller will get more value for the sale of the business if it continues to perform well throughout the sale and transition process. There is a win-win situation for the seller and buyer in keeping the business performing well. So, seeking to screw the buyer in the transition, by whatever means, is counterproductive.
The much more complex situation is the one I was in when Barclays sold their Transpay division to Travelex in 1999. I was Head of Finance in Transpay. And Travelex, at that time, had no similar operation, and therefore the business was acquired pretty much as a standalone fully trading entity. Technically I was primarily working for Barclays in ensuring a clean exit. However, having been told that I would be appointed Finance Director of the new division at the completion of the deal, I had a vested interest in Travelex succeeding in their transition responsibilities. And that was the same for most of us who would be transferring. The difference for Finance was that from the completion date we would have new systems and processes for literally everything. That meant that my team and I had to work just as hard (if not harder) on ensuring that all these new processes and systems were designed, built, and ready, as well as ensuring that the exit from Barclays was smooth.
Effectively that meant we were doing project work for the buyer whilst still doing Business As Usual work for the seller.
What would my advice be for you if you’re put in a similar position? Probably I’d say you should make sure that business management, directors, and the team thrashing out the legal agreements are aware of the situation. The fact that you’re being paid by the seller, but doing work for the buyer in preparing for the transition, is an exchange of value. It’s also a pressure on resources that could backfire on the seller. That presents a risk to the transition, which needs to be managed. So, don’t keep quiet about it. And if it gets tough, get someone to pay for additional resources or put the completion date back.
Planning for Transfer of the Business
Once you’ve established what your role is, whether it’s buyer- or seller-focused, or both, next you have work out what you and the Finance team have to do.
Space does not permit me to go into all the things you may have to consider. It’s normally a case of brainstorming the implications, logging questions and creating an action plan to get them all resolved.
For now, let me give you a few high-level things to think about before I come to my final point.
- When you’re planning for, and going through, a transfer of ownership, get sight of all the draft legal agreements (SPA, TSA, and others) as early as you can. Review them thoroughly, submit feedback to the transition project manager, and ask to be included when new versions are produced. Understanding how the sale and transition process is going to work in detail is essential. Note anything that may have an impact on you, your team, your processes, the Finance function or the business. Work out what actions for you and your team are implied. And create a project plan from it.
- Completion day – is there anything you and your team need to do on the day? What will the disposal and/or acquisition/merger accounting entries be. Draft them out, so that everyone is clear how the accounts will be affected, and so that you only need to finalise the accounting entries when the numbers and deal structure are finalised.
- Post-completion responsibilities – is there anything you need to keep track of, and do, after the completion day. Are there any “earn out” arrangements? Is there a “locked box” arrangement? Are all the debtors and creditors being sold, so that cash receipts and payments after completion are all legitimately for the buyer? Or is there a different cut off arrangement for cashflows or for certain assets and liabilities?
- Transitional Service Agreements – definitely start planning for operating these before completion. Make sure the communication, calculation and billing mechanisms are in place beforehand.
- Integration projects – integration may start as soon as the business transfers, or there may be a period where the business is run separately within the new group while an integration strategy is worked out. The business case for an integration project/programme will come from the financial model the buyer used in assessing the purchase of the business. The assumptions from this will suggest an outline of what the plan will be. But this will need to be challenged, validated, and then fleshed out into a Target Operating Model (TOM). The Finance function will need to consider any consequent changes to financial transaction, accounting and cash processes, as well how that fits with the TOM for Finance itself.
Finance Business Partnering Throughout
The final thing I wanted to say about the way Finance is affected when businesses change hands is that the mentality from start to finish should be for the good of the business. I’ve said before that Finance Business Partnering is a mindset more than a role. And that mindset should be prevalent throughout the process of deciding whether to sell, finding a buyer, supporting due diligence, drafting agreements, planning the transition, accounting for disposal/acquisition, right through to doing the integration.
The reason I make this point is that it’s easier to focus on the uncertainty that the situation brings upon us personally. But as professionals we have to be able to set that aside, at least while we are at work, and still recognise the good reasons why the business decisions have been made. We should still be able to work with positivity, helpfulness to business colleagues, and thoroughgoing diligence, even while seeing our jobs turn into something we don’t want or disappear altogether, and even while seeking out a move somewhere else.