This article originally appeared in the April 2022 issue of Security Business magazine. When sharing, don’t forget to mention Security Business magazine on LinkedIn and @SecBusinessMag on Twitter.
You have worked hard for many years as an owner of a company. Maybe you hired employees, raised capital, grew the business, and invested your heart and soul.
Suppose another company wants to buy or merge with yours. As an acquisition target, there are many issues to consider, including financial, legal and personal. With many security business owners in this very situation, here are eight things to consider:
1. Make sure there is a match. People are usually the greatest asset of any company; however, people are also innately tribal. I do not mean that disparagingly – it is simply human nature to align with or feel allegiance to one team over another. However, the long-term success of a merged business requires that people work together, not in opposition. So, when assessing a merger opportunity, you must consider whether the cultures of each organization are a sufficient match to allow for success.
2. Make sure any offers are serious. Sometimes companies will float acquisition offers – particularly to startup companies or other smaller enterprises. Not all offers are made in earnest. The acquisition target should avoid devoting substantial time to an offer until they know it is serious. Always be sure that you are dealing with someone at the acquiring company who has actual authority to strike a deal, is enthusiastic about the acquisition, and committed to its success.
3. Be transparent with your key personnel. If leading a potential sale or merger, be sensitive about the information you share. Your team may have questions or suggestions. Be as honest and transparent as possible – particularly with key personnel. If they were integral to your success as a company, they will be integral to success of a sale or merger.
4. Determine who will keep their positions and for how long. Sometimes, a sale or merger results in everyone losing their job; other times, no one loses their job. When considering a sale or merger, assess whether existing personnel will keep their positions, for how long, and on what terms. Will pay and benefits change? Will the office relocate? Is the continued employment of key personnel a condition of the sale? If the acquiring company perceives value in continuing the employment of key personnel, then the sale price may go up accordingly. If positions are eliminated, the company may have to provide severance and consider the use of confidentiality, non-disclosure and/or non-compete agreements with departing personnel.
5. Be prepared for your role and duties to change. Whether you are an owner, executive or employee, there is a likelihood that, if you still have a role in the company after the sale or merger, your role will change. This is especially true during a transition period.
6. Don’t forget the customers. If the sale or merger is of a customer-facing security company, do not forget that the customers rely on your products and services and will need uninterrupted access to those products and services. They do not care about your corporation transaction. They care about their own safety and security. Their interests must be protected during any transition – or else you and/or the acquiring/merging company could face potential liability.
7. Retain competent experts. It is critical to retain expert merger and acquisition advisors, including bankers and lawyers. This will ensure that your rights are protected, that you get a fair and accurate valuation, and that post-sale or merger problems are mitigated in advance.
8. Let it go. If your company is sold or merged, and you are not in the future plans of the company, do your best to let it go. Be proud of what you accomplished, trust that the company is in good hands, and go find your next opportunity.
Timothy J. Pastore, Esq., is a Partner in the New York office of Montgomery McCracken Walker & Rhoads LLP (www.mmwr.com), where he is Vice-Chair of the Litigation Department. Before entering private practice, Mr. Pastore was an officer and Judge Advocate General (JAG) in the U.S. Air Force and a Special Assistant U.S. Attorney with the U.S. Department of Justice. Reach him at (212) 551-7707 or by e-mail at [email protected].
