This chapter reviews the closing of the deal. The key aspect of this step is the preparation and signing of the purchase agreement and other documents needed for closing.
Beyond the legal requirements of having a purchase agreement, the preparation of the document itself is an important aspect of the due diligence process. Because of the representations and warranties a seller is obligated to vouch for, frequently, problems surface during this period that you may not otherwise uncover. For this reason, it is very important to begin work on the purchase agreement as soon as the letter of intent is signed and you begin formal due diligence.
The momentum of closing and emotions attached to it may vary substantially, depending upon the type of seller with which you are dealing. With a divesture from a large corporation, you are less likely to deal with a fear of closing. The company has strategic reasons for spinning off the particular division you are buying. On the other hand, you may not have the closing momentum and urgency that builds when dealing with the private seller.
In addition to working out details of the purchase agreement during the due diligence process, you should concurrently work on the action plan for the days and weeks after closing. Chapter 15 covers some of the key points to consider in developing such an action plan
After the Deal is closed
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 non-management 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 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 over time.
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.
These articles are an overview of steps 15 & 16 that are explained in further detail in “How to Acquire the Right Business” by John Psarouthakis and Lorraine Uhlaner; Published by Xlibris, 2009. This book covers the 16 key steps involved in the complex and demanding process of buying the right business. It includes the search, selection, evaluation, pricing, negotiation, closing and managing the start of an acquired business. Buy this book.