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Dr. John Psarouthakis, Executive Editor of, Distinguished Visiting Fellow at the Institute of Advanced Studies in the Humanities, University of Edinburgh, Scotland, publisher of and Founder and former CEO, JP Industries, Inc., a Fortune 500 industrial corporation


This article describes some of the key steps you should take within the first days and months after closing. Once you have closed the deal, you must do certain things immediately, even the morning immediately following the closing. This chapter will give you some general guidelines that you can use to plan your own actions during this critical period and why we think these guidelines are important to follow. The suggestions provided are intended as general guidelines that apply to most types of businesses.

Objectives of the Transition

Within the first days and weeks after you take ownership of a new company, you have a window of opportunity within which to accomplish the following key objectives:

a. To build trust and confidence in you as the new owner by your key constituencies: your employees (management and non-management), customers, suppliers, and the investment community.

b. To review and revise the company action plan developed during the due diligence period, now that you have actually taken over ownership of the company

c. To take steps toward making the major changes implied by your action plan.

The actions you take, even on the first day after closing, set the tone and the likelihood of accomplishing these objectives in a satisfactory way.

The First Day after Closing: Meetings to be Set Up

In our experience, the following order of meetings should be organized for the first day after closing takes place:

a. An initial get-together with management

b. An all-employee meeting

c. A more formal business meeting with management, which takes place after the all-employee meeting

These meetings lay the groundwork for accomplishing the objectives of the transition to new ownership. There are two reasons for making sure these meetings take place the first day and in the specified order.

First, word gets around fast that the new owner has arrived, and everybody gets fidgety and nervous. They are asking themselves who the new owner is, what he or she is going to do, and so forth. Gossip and rumors start to circulate. The longer you take to introduce yourself, the longer such disruption takes place and the longer potential misinformation circulates.

Second, by holding the all-employee meeting before the more formal business meeting with management, you will get a good indication prior to the management meeting of the mood or overall climate among employees. For instance, is it stressful or blasé? Is there a level of high or

low trust? Are people generally supportive or suspicious? Employees are not good at hiding their feelings. Their words and nonverbal behaviors can reveal a lot if you pay close attention to them. If you obtain this feedback from employees (both management and non-management) before your first formal meeting with management, then you can discuss your concerns at the management meeting. In short, you need to put the human factor first.

Note that even though you hold these three meetings the first day, you will probably hold several additional meetings over the next several days. But you should do everything in your power to have these initial meetings on the first day so that no time is wasted before you begin to sit down with your employees to introduce yourself to them, to answer, questions to put certain rumors to rest, and to build trust. In that way, you can more effectively start working on the content aspects of the transition.

The Initial Get-together with Management

On the first day, you actually want to meet with the management twice, once informally, prior to the all-employee meeting, and again later, in a more extended business-planning meeting. You hold the first meeting to accomplish three things:

1. To introduce yourself formally and to provide the opportunity to be properly introduced, in turn, to your management staff—their names, titles, and responsibilities.

2. To arrange for an all-employee meeting so that you can talk to all employees (to include everyone—both management and non-management)

3. To provide a conceptual idea of the agenda for meetings to come in the first few days especially, your intentions to review the action plan together with management.

The All-Employee Meeting

The all-employee meeting should be scheduled as quickly as possible mon the first day after the initial get-together with management has taken place. Prior to the start of the meeting, you need to circulate around and get a sense of what the employees are thinking and what the overall atmosphere is like. Are people tense and worried or relaxed? This will help you in gearing your words and tone toward the group in an appropriate manner. Once the meeting begins, the mfollowing should take place:

a. You will formally introduce yourself as the new owner to all employees.

b. You should share with employees why you bought the company and what you believe you can or should do with the company.

c. You should explain to all employees that there is an action plan but that management must review the plan more thoroughly now that the ownership transition has taken place.

d. Finally, be sure to open the meeting to questions and respond honestly and responsibly to them.

Hopefully, being included in the meeting will help give all employees the feeling that they have been brought on board. Note that unless you are very clear about it, some managers may reinterpret an all-employee meeting to mean only hourly workers and not management or other staff. The importance of including everyone from a team-building aspect should be obvious, but it is important to stress at the initial management meeting that you insist that everyone in the company attend. One time, when a meeting was called for a JPI acquisition, the manager brought in only the hourly workers. John Psarouthakis, one of the authors, asked, “What did you do with the rest of them? Did you fire them?” The manager answered, “Oh, you meant, all employees.” “Yes,” I answered, “I meant all employees.”

The Formal Business Meeting with Management

After the all-employee meeting, you are ready to hold the first formal business meeting with management. The following three agenda items need to be addressed:

a. In more thorough terms than in the initial meeting, the need to review the action plan

b. The opportunity for each manager to share issues, concerns, or priorities at the top of his or her list

c. Discussion of a plan to address the constituencies outside the firm, especially customers and suppliers.

Review of the action plan If you have followed the advice of previous articles, as a new owner, you already have developed an action plan prior to closing of the deal. However, since the plan was developed prior to the transition to new ownership, you cannot be sure that the plan reflects the most appropriate course of action or was based on the most accurate picture of your new company. Commonly, at least some of the employees, customers and/or suppliers may have been a bit suspicious of your motives during the due diligence period and thus may have been on their guard when providing their input. After all, at that time, these people did not know whether or not you were going to be the new owner—you and your representatives were total strangers. They may not have lied to you necessarily, but they may well have communicated less openly to you than they would to an actual owner. And of course, certain aspects may have changed in the meantime. Now that you have taken over ownership, therefore, one of the very first things you must do is to determine whether and in what aspects the action plan needs to be updated.

Though it is a good idea to mention briefly the need to review the action plan at both the initial management meeting and at the all-employee meeting, at the first formal business meeting, you begin to approach the review process in more detail. You should distribute copies of the action plan at this meeting, explaining at the same time that the plan was developed in the process of evaluating the company before the new ownership took over, and thus aspects may have since changed. You might want managers to look especially at those aspects affecting their areas and set a mutually acceptable date by which you will have a follow-up discussion of the action plan. You may need to give certain managers a few weeks to gather necessary information from customers, suppliers, or others to clarify some aspects of the plan. Keep in mind this is probably the first time most if not all themanagers have seen the action plan in its entirety, even if they might have provided input previously into the plan. Thus, it is not productive, and even problematic to discuss it until everyone has become more familiar with it.

Primary issues faced by management It is important to ask managers at this meeting what they consider to be primary issues of concern that need to be addressed immediately. Perhaps the prior owners were procrastinating on some key issue. At this point, you want to be careful to

serve primarily as a listener after opening up the discussion. You should hear their views one at a time, encouraging a give-and-take atmosphere rather than individual monologues by you or your managers. You also want to be sure to give every manager the opportunity to express his or her views about the issues with which she or he is dealing, how urgent these issues are, and how long they have been a concern. In short, you want to see what management believes are the issues the new owners should address. These may or may not be the most critical issues from your perspective, but you want to give them the opportunity to relate their thoughts to you. Concerns may come from several sides—employees, customers, suppliers, product mix, equipment problems, or other production issues, such as training or retooling needs.

It is important to set the tone of an open climate for discussion. Managers should feel that any issues may be raised—whether they are rumors about layoffs or competitive aspects that are, important to that manager, but due diligence didn’t reveal. You can structure more specific

discussions at later meetings, but this part of the meeting should be as open as possible to any topic that management might want to raise.

Finalizing a plan to address outside constituencies Finally, at this first formal meeting with management, you want to develop the basic outline of a plan to address the customers, suppliers, and other outside constituencies such as bankers or other members of the investment community. For instance, someone from the company should be assigned to contact key customers and suppliers to inform them of the identity and philosophy of the new owners. It is helpful to share the overall strategy of the new owners, especially as it might impact these customers or suppliers. For,instance, will the same parts be purchased from suppliers, or will there be a different type of supplier needed? Will the same products be available to customers, or will be there be shifts affecting availability of your product? Depending upon how far you can get with this first meeting, you may not be able to list specific dates for every activity. But at least you

can lay out the landscape for the general activities to take place in the coming weeks and months, and preferably, who will be responsible form seeing them through. Once you have the big picture from this meeting, then you can work out a weekly, monthly, and even a quarterly schedule

to take care of these changes until you have completed the transition of ownership. Expect this transition to take about nine months, on average, for routines to set in with the new ownership. Modus operandi is then established. Even if pursued diligently, this period of transition can range

between six and eighteen months depending on the size and complexity of the company.

Addressing Concerns of Your Key Constituencies and Building Their Trust and Confidence

In taking over ownership of an existing company, you need to address the concerns of various constituents. This section describes some of those concerns in more detail. Four constituency groups require immediate mattention when new ownership takes over: employees, suppliers,

customers, and the investment community, especially the banks.

An Overview of the Four Constituency Groups The employees need to know who the new owners are, what their intentions are, why they bought the company, and what they plan to do

with it. Employees are usually most concerned with changes affecting job security and long-term prospects of job advancement. Will there be staff reductions or a major shift in strategy? What is going to happen now that the new owner has taken over? This is such an important area that we will discuss the concerns of this constituency group inm greater detail.

The suppliers want to know who the new owners are. Will the prior relationships continue, or will there be changes? If suppliers are critical to your business, you should have a high-level person (yourself or a key manager) contact your key suppliers to communicate this information firsthand.

The customers are an extremely important constituency, of course. With a transition to new ownership, existing customers may be uncertain about whether or not they will continue to have a reliable supply of the product and/or services from your company. This uncertainty may

even cause them to change suppliers. Thus it is important to address this concern early on. If your business relies on a small number of key customers, such as is the case for many manufacturers, it is especially important that you or one of your key managers contact each of these, customers firsthand, to answer any questions they might have. When, retail or consumer-oriented services businesses change ownership, they often develop a plan to communicate the meaning and implication of the transition, with a combination of general advertising to the community and perhaps direct communications to their customer list.

The banks—both those set up by the previous ownership as well as those involved with you prior to closing, want to know as soon as possible whether the guidelines on which they based their loans are still in place mor have changed—for better or worse. They will be especially interested in changes you may need to make in the action plan now that you have taken over ownership

It is very important that all the constituencies are contacted about the change of ownership and any major changes in company direction within two to four weeks after new ownership takes over. If your company is underperforming, then your constituents are probably already aware of that fact making it all the more important to let them know quickly of your plans for turning the company. Even if your company is doing well, constituents need to be informed if you plan to make changes to the product line or other services that you offer.

Special Concerns of Non-management Employees and Management Employees are perhaps one of the most delicate constituency groups to address in the changeover to new ownership. A clear understanding and appropriate response to employee concerns is critical for effective transition to new ownership. A new owner sensitive to these concerns is less likely to be viewed as an intruder. In particular, the typical non-management employee is likely to have one or more of the following concerns:

1. Job Security. Quite simply, most employees want to know whether or not they will still have a job under the new owner. After all, in the end, they didn’t choose to work for your company because of the prior owner’s blue eyes or because of your tennis game. They are there because they need employment, and the environment is positive enough that they have decided to get their income there in exchange for working for the company on a regular basis.

2. Income Level. Employees also want to know whether or not they are going to suffer a loss of income due to the change in ownership or will have to work harder to make the same money. This is likely to be a much greater concern in companies where employees are already aware that the company is experiencing financial difficulties.

3. Location Stability. Employees may want to know of any plans by the new ownership to relocate some or all of the business. These concerns, again, are likely to be heightened if employees are aware that the company is experiencing financial difficulties. Location may also be of greater concern if headquarters of the new owner is in another city.

Management personnel are likely to have these same concerns. In addition, they are likely to be concerned about company structure, changes, which might impact not only their job security and income level but also their responsibilities and opportunities for advancement. Furthermore, management employees may be especially concerned about long-term growth prospects of the company since it can also impact their opportunities for advancement. Of course, hourly employees will also feel that their job is more secure and that they are more likely to get a raise if the company grows.

Before you address employees at the all-employee meeting, you will find it useful to get a sense of these concerns at your new company. Theearlier you get a sense of them and the earlier you address them in a way  mthat is constructive, the better. These concerns won’t disappear and the stress associated with ambiguity related to the future of each employee, can be extremely counterproductive.

Setting the Proper Tone with Employees Content aside, the tone you set the first day will carry for a long time into the new business. It is important that you leave an impression after the first day that you’re serious and you’re not in a hurry where employees ,are concerned. Don’t just say, “hello,” “good-bye,” and then leave them hanging. You want your employees to know that you are very interested in working together with them for the future good of their company, that you will do whatever it takes to make the company a success, and that you mean well. You also want to leave the impression that you’re a “no-nonsense” type of person who won’t waste time getting needed changes under way. It is also important to come across as sensitive to others’ responses.

The first day, at the various meetings, you need to listen carefully to the points of view presented, even if you don’t agree with them or they are stated in a hostile manner. Employees are usually under a tremendous amount of stress and uncertainty, and all don’t share the same diplomatic skills that you might desire, especially under those circumstances. This provides a great opportunity to communicate your sincerity about being concerned about the future of the company, even if employee reductions may be required. Thus, it is important to be honest. For example, don’t allay fears about layoffs on the first day and then announce that very program two weeks later. However, if you are forthright about the need for the employee reduction or some other major change and follow the plans as stated, the remaining employees will have more confidence about their future. In sum, from the start, be sure that you say what you mean, and don’t make arbitrary decisions.

The Cost of Owner Inexperience

Inappropriate handling of employees on the first day can be remembered years later as one former wine importer recall

In one of my early acquisitions, following the advice of my

accountant, I stayed away much of the first day. The accountant

had felt that the news needed to sink in that the company was

being taken over. This turned out to be faulty advice. I stopped

by finally at the end of the day to introduce myself. Everyone

appeared friendly and open at the time, but in retrospect,

I completely misread the situation. I was full of excitement

about my new company and didn’t sense the employees’

apprehensions. Further, I made the mistake of misreading

their willingness to stay after normal work hours to chat. Of

course, I asked if they minded staying awhile to talk, and they

expressed a willingness to stay, but I realized later this was

only said out of fear of my position of power as the new owner.

Even months later, when they finally told me my mistake and

after I had apologized for keeping them late, they still felt I

had so overstepped my bounds with them that first day that

for years after, employees in that company regarded me with

suspicion and thought I was insensitive to their needs. On that

first day, they had thought their world might be collapsing at

that moment, and I had unwittingly ignored this. Perhaps it

would not have made a difference, but I felt that the transition

could have been smoother had I spent more time with them

early on that first day and discussed their concerns. In short,

in twenty minutes, I lost a tremendous amount of goodwill that

was never regained.

As with most employees of newly acquired firms, these employees were fearful of their job security and future with the company. The wine importer became much wiser (and more successful) in his later acquisitions, addressing employee concerns early on the first day of ownership.

Steps toward Making the Major Changes Implied by Your Action Plan

Dramatic changes need to be announced immediately because that is when employees expect them. But if you don’t make these changes early on, then as time passes, employees begin to assume that there won’t be any, their attitude changes, and then when you try to implement change at that point, it becomes very difficult and builds distrust. Another reason for making changes early is that their implementation may require multiple action steps, which take significant amounts of time, and it is important to get started as soon as possible. For instance,

if you plan significant changes in production technology, this in turn, is likely to involve employee training. The sooner you start planning theproduction technology change, the sooner management can start planning the type of planning needed, who goes to the training, when it will take place, and so forth.

How to Approach Employee Reduction, Employee reduction is such a common consequence of new ownership that it deserves special attention. Generally people are intelligent and not

that naïve. If a company is underperforming, the employees are often the first to know it, even before the owners. They often desire changes since in the long run this tends to make their jobs more secure (if they can weather the effects of employee reduction, of course). They often realize that some level of employee reduction is essential to the long-term survival of the company.

Suppose you are faced with having to make employee reductions. There is no way to “soft land” this type of action completely, but you can do certain things to make it more acceptable. It doesn’t help to blame people for being stupid or incompetent (especially not those you must continue to work with!). But it may well be true that the prior leadership or management (ideally, you want to avoid being too hard on current management) made decisions that had negative consequences. If so, you might need to explain that the prior ownership allowed certain activities to take place obviously intended well but with negative results that now need to be corrected. For example, a classic strategy error in manufacturing is the decision to continue making a certain product when it is clear that the product is no longer relevant to the market. Perhaps the previous ownership did not pay close enough attention to market changes or had emotional reasons that made it difficult to let go of the outmoded product. When this occurs, the corollary to that is that you often have more employees at all levels continuing to make that product contributing to overhead and a more unprofitable result. This unfortunately then triggers the need for employee reductions unless you can shift those employees to other product lines that are growing more rapidly. However, this is not always feasible. If not, it is important to share this picture so that employees understand why the layoffs must occur.

You must also have a specific plan for the layoff, not just walk in one morning and announce that 30% of the employees will be let go. Unfortunately, that is frequently what happens. If you are buying an underperforming company, in all likelihood, if you have carried out due diligence properly, you know you will face employee layoffs ahead of time. Thus, you can build in the employee reduction aspect into your action plan and the costs associated with its implementation. The programs you may want to provide laid-off employees should thus not only be part of the action plan but also part of the negotiations. If you do this, then you can be confident that you can afford the programs that you propose. For instance, if you feel it is appropriate to include placement help and retraining programs for employees that must be let go, you can factor these costs into the original price you pay for the company. You might negotiate a contract with local training centers and community colleges to update their skills. It is important to have a cap, in terms of the amount of time people have to apply for such benefits and how much money you are able to spend. For instance, you might have a 45-day limit for applying for such benefits and a certain number of days or courses of training that employees may take.

Environmental Issues

Remedying environmental problems are similar to employee reduction in that if you have done your due diligence thoroughly, you will know in advance that you will have to take some actions to remedy pollution or other types of waste problems. If you factor this into your action plan and subsequently into your negotiations, then you shouldn’t have to deliberate further once you take over ownership whether you can afford to comply with the law. It is already built into your agreement. For instance with one acquisition, JPI had a problem with lead pollution at one of its plants. The previous and new owners negotiated a cleanup fund of about $5million to be paid by the previous owner to cover the costs of cleanup. The agreement included the understanding that if less were spent, the balance would be returned to the former owners. On the other hand, if the cleanup cost more, JPI would have to cover the difference. In fact, the cleanup cost only about $4 million and the balance was thus returned to the former owner. This arrangement benefited not only the community but also employee relations since many of Jigs employees lived in the same community and appreciated the environmental responsiveness on the part of the new owners.

How to Get a Sense of the Place and Stay in Touch

During the transition period of six to eighteen months, it is important to remain involved with your new acquisition. It takes several months to complete the transition to new ownership. If you are not involved on a day-to-day basis as an owner-manager, it is important, nevertheless, either for you or in the case of a very large corporation, a designated representative to visit the company frequently. You can’t expect to go in like a bulldozer for just a couple of weeks and then manage the operation long-distance after that. You need to be on-site to see how things are

going, to sense how well changes are taking place, and to keep tabs on the climate or atmosphere. Using telephone, fax, or other contact, or bringing management from the new acquisition to the home office does not substitute for on-site contact with all levels of employees. Many new owners do not like to do this. Most people feel that if they visit the new company a few times the first month that this is enough. But this tends to be a mistake.

One of the challenges faced by the owner is how to carry out these visits, however, without undermining management. This task may be made all the more difficult if you are off-site much of the time, attending to other aspects of the business or other companies that you own. You, may easily find yourself undermining the authority of your management team if you are not careful. You have to be conscious of the fact that as the owner, your words have considerable weight, and your intent can easily be misinterpreted.

The goal of your visits should be to absorb information, not to tell people what to do. You should walk around the company, interacting not just with management but with nonsupervisory personnel as well. However, you need to be very careful not to undermine the existing management structure as you do so. It is tempting to issue direct orders when you see that something may need to be changed. But it is important to follow the chain of command—sharing your observations with the appropriate manager and allowing him or her to decide whether or not action needs to be taken, based on your input.

You also need to be careful not to override the chain of command, even unintentionally. This can happen quite easily if you are not careful as one of the authors discovered after a visit to one of his first acquisitions. As he was walking around one plant, he asked an employee why a piece of equipment was located in a certain spot rather than somewhere else. The employee gave a suitable explanation, to which the owner responded “fine, thank you,” but nothing else. Nevertheless, on the next visit, the new owner discovered to his surprise that the equipment had been moved to the new spot. This change created two problems (a) the machine was moved to a less desirable location than where it had been before and (b) the employee’s manager didn’t know that it was being changed until he saw the piece already moved to its new location, and no doubt felt that his authority had been undermined. That’s not very healthy. In sum, it is so easy for employees to misinterpret the questions of a new owner as a mandate. Thus, as you ask questions, it is helpful that you immediately follow the question by letting the employee know that you don’t want actions taken based on your conversation—you are just trying to learn how things are done.

At times of course, you may uncover problems that require attention. If so, then you should go to the manager first and say, in effect, “While I was walking around, this was my impression, and I’m thinking that perhaps things need to change.” If the manager agrees, then he or she needs to make the change, not you. Otherwise, if you go around making changes yourself directly then you render the management team ineffective. Even long-term owners make this mistake, but it is especially easy to fall into this trap as a new owner.

It can be very tempting at times to break this rule. But keep in mind that you may not have all the information even if the answer seems obvious, and that if you feel that immediate action needs to be taken, you should talk to the appropriate manager first. Consider this example: imagine that in your “walk” around the company, you discover from an accounts receivables employee that Customer A consistently pays in sixty days instead of in thirty days, in direct violation of general policy. It is tempting to interfere, perhaps suggesting that the employee needs to contact Customer A to get him back on track. If you react this way, of course, the employee will likely obey your orders. But perhaps Customer A has worked out a special payment plan with the department head. Perhaps the customer has only recently fallen into arrears or perhaps it is a very large client who has negotiated special terms. Therefore, if you forget to talk to the department head first, you have overridden his decision without knowing it. Thus instead of taking action, you should tell the employee, “Gee, that is too bad, but don’t do anything until your boss or department head is consulted about it.” It is for his boss to tell him what to do, not you. Of course, don’t forget about the problem. If you think it is an important issue, you might go to the department head directly and ask why Customer A is paying in sixty days instead of thirty.

Then listen to the manager’s views and give him the opportunity to take corrective action instead of doing it yourself. You have to put your ego on the hold, from that perspective. Otherwise, your management will eventually become afraid to act when you are not there, and you will no

longer be able to delegate effectively.

The lack of awareness of how an owner undermines his or her team is not unique to new owners. But particularly in the case of new ownership, employees are prone to take every word you say as an instruction of what to do, so you need to be on special alert.


Once you close the deal, you need to be prepared to go in the very next morning to meet with your management team as well as your entire staff. What you do in the first days and weeks will set the tone for your relationship with your employees for some time to come, possibly even

the duration of your ownership. Remember that the chief concerns of your employees and managers may be somewhat different than your own agenda. Employees will be concerned, first and foremost, about their own job security and future with the company now that it is under new

ownership. Management shares this concern and may also have more narrow issues facing them in their own departments that nevertheless they may feel requires immediate attention. An easy model to follow includes a short initial introductory meeting with management, an all-employee

meeting to include all management and nonmanagement staff, and then a third more formal meeting with management. These meetings will set in motion the planning to carry out the three objectives of the transition: addressing your key constituencies (employees, customers, suppliers and bankers), revision of the action plan, and implementation of significant changes outlined in the plan. Other meetings will follow in the first days and weeks, but it is essential to try to fit these first three meetings into the first day if it is at all possible.

As a new owner, you must be careful to listen carefully, building trust and goodwill with your new employees. Although difficult to accomplish, even negative changes such as employee layoffs can be carried out effectively if you communicate your objectives clearly, follow through relatively swiftly during the early period of transition, and remain sensitive to special needs of employees going through such a transition. Layoffs in particular need to be carefully addressed since it also affects the morale of remaining employees. It is wise to anticipate the costs of major changes such as retraining and outplacement services for employee reduction or toxic waste cleanup for environmental issues in the original action plan and in the negotiated price for the company so that you can afford to carry out these actions in the early weeks and months.

One of the easiest mistakes to make as a new owner is to override the existing management structure. You need to be very visible in the early months, making contacts at all levels, not just top management so that you can spot problems and build rapport with your staff. At the same time, if you identify problems you feel are in need of change, you should strive to work within the chain of command. Rather than act unilaterally, go to the appropriate manager or direct an employee to do so. Otherwise, you will eventually make your management team ineffectual.

Most important of all, be patient. The transition may take a year or more. However, with proper advance planning, your reward is that you will increase the odds that you will realize the gains that you had anticipated when purchasing the business.









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