Mark Pestronk
Q: I have signed a letter of intent to sell my agency to a much larger one. We are set to officially close the deal in two weeks, and I am working hard to make sure all the documents are in order and all pre-closing conditions are met. The buyer would like to begin the transition before closing so that my staff can be signed up for the buyer's payroll and benefits as of the closing date. Should I acquiesce and tell my staff about the sale before closing? My conscience tells me that I should do so to avoid hard feelings by employees who will undoubtedly think that they should have been consulted before I sold.
A: It is probably a mistake to tell your staff about the sale before it happens. It is also probably a mistake to tell third parties such as clients, travel suppliers, landlords or your consortium unless you are contractually required to do so.
I understand why it is in the buyer's interest to try to get your staff onboard before closing. It not only makes for a smoother transition that might otherwise be rushed after closing, but it also makes it much harder or even impossible for you to back out of the deal.
From your point of view, I can think of at least four reasons to keep mum:
• Your letter of intent may not be binding, which means that the buyer could back out of the deal. Then you would need to explain to employees why it didn't go through.
• Employees may have told clients, suppliers and even competitors, so you may have more explaining to do.
• Having to explain why you didn't or couldn't sell could be embarrassing. It could make other potential buyers wonder what is wrong with your business.
• Employees and independent contractors might get nervous and wonder whether their jobs will be secure. You cannot assure them of much except for what the buyer has told you, which is not binding for anyone at this point. So your staff could start looking for other jobs where they feel that their future might be more secure.
I can see just one exception. If you need your bookkeeper's help to produce reports and financial statements requested by the buyer before closing, you may have to tell the bookkeeper why you need the information, but you need to make him or her promise not to disclose anything to the rest of your staff.
Clients might also wonder whether they will continue to be provided with the same high level of service that you provide.
Lacking contact from the buyer, they might decide that this is the perfect time to start shopping for a new agency.
You are going to be very busy with pre-closing paperwork and may not be in a position to answer questions from staff or clients.
Of course, you might be contractually obligated to get a third party's consent before closing. Consortia, franchises, landlords and GDS vendors typically have such clauses in their standard agreements, as does ARC. In those cases, you need to weigh complying with the agreement against the risks of disclosure covered here.