In Part 8, we discussed Seller Financing. Let’s assume that careful seller financing closes the financing gap. In this part, we consider transition issues.
The buyer wants to have a smooth transition of the business from the old owner to the buyer, with minimal disruption in sales, operations, and employee productivity. If the transaction is a merger, both parties have an equal stake in making the transition successful. What can we do to make this more likely?
Step 9. Manage the Transition
There are several scenarios that require some transition management:
The buyer wants to keep the entire management team, or only certain key managers.
The buyer wants to bring in some of the buyer’s own team members, and the integration of the teams is critical to success.
The buyer wants to retain the exiting owner, or perhaps some key employees, for a period of time, to train a new management team and to help transition the existing customers to the new management team.
If an earn-out is involved, the seller should be particularly motivated to work out a careful transition plan to make the earn-out as successful as possible.
For these and other reasons, it’s a good idea for the buyer and seller, working together, to establish a transition plan in advance of closing.
The transition plan should be started early on in the acquisition process. Often, the formal transition plan will be developed once the Purchase Agreement is signed and before closing.
The parties should consider forming a Transition Committee to handle this task. The Transition Committee could consist of key persons of the buyer, and possible key persons from the seller’s side. If the current owner or key seller employees are staying on, some of them should be involved. If not, it might be worthwhile to hire a key person from the seller to act as a consultant on transition issues for a fixed period of time.
The Transition Committee would be tasked with developing the transition plan. After buyer’s board approval, the Transition Committee would share the plan with management, employees and other stakeholders as needed, to get input and buy-in on the plan for maximum success.
The Transition Committee would likely also be tasked with implementing the transition plan after the closing. If the buyer has a capable HR department, the HR people will be integral in implementing the transition plan. In any case, managing the transition will be beneficial to all parties.