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How to Run the Company during M&A Due Diligence

Seller should continue to run the business as if she weren’t in the middle of an M&A deal. The company should buy supplies, pay bills, and make sales calls as before.

However, if Seller is thinking about making big business decisions, such as substantially increasing overhead or hiring new salespeople or executives, she should probably confer with Buyer first because huge changes to the business may affect the company, notably the profits.

Selling a business is a highly sensitive process, and Sellers need to tell their employees of the sale (or pending sale) at the right time. Furthermore, Sellers need to control that right time. Unless an employee needs to know (usually executives and certain financial personnel need to know), Seller should wait until the deal is closed before making an announcement to the employees.

Keeping the cards close to one’s vest is important for a couple of reasons. If Seller informs the employees of a potential sale that ends up falling through, Seller loses face.

Worse, employees may start to wonder why the deal didn’t close. They may assume that the company is facing some sort of problem and start a mass exodus. Additionally, employees who hear about the pending deal may assume they’ll get fired after the deal closes and begin to jump ship as they look for new jobs.

If the news of a pending sale is released prematurely, the company may suffer major losses. For this reason, Sellers shouldn’t give Buyers carte blanche to contact Seller’s employees at will. Buyer shouldn’t call or contact any of Seller’s employees without Seller’s explicit approval. Seller needs to carefully control this release of information and the timing of when Buyer speaks with employees.

As Seller, if someone on Buyer’s team has caused a breach by making unapproved contact with one of your employees, immediately pick up the phone and call the other side. Don’t rely on e-mail. You need to have a conversation.

Remind Buyer he’s not to make contact without your approval and ask him to adhere to protocol and the terms of the confidentiality agreement. Most Buyers immediately understand the gravity of the situation and take steps to fix the problem. In other words, someone on that team is about to get an earful!

After making such a phone call, send an e-mail memorializing your conversation and ask the other side to confirm receipt and understanding of the e-mail. This way, if the problem occurs again, you have a written record of the first breach.

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