Target management challenges between signing and closing – managing in limbo


Financier Worldwide Magazine

June 2019 Issue

In a typical M&A transaction, dealmakers devote a lot of time and attention to the pre-signing period. Buyer, seller, target and their respective legal, tax, financial, accounting and strategic advisers focus on the due diligence review and on the negotiation of deal terms and multiple transaction agreements.

After signing, with the announcement of the transaction, only a few of these dealmakers remain involved, as target and seller seek to obtain required regulatory approvals, including from antitrust authorities, and third parties’ consent, mostly from creditors and key clients. It is only at the closing session that dealmakers gather again to wrap up any open points.

The story is completely different for target managers. In their case, the play button is really pushed when the transaction is announced publicly, at signing. During this period, perspectives and incentives may change abruptly for many key internal and external stakeholders, including employees, key suppliers and clients.

Limbo generally sets in, together with an avalanche of questions and a constant feeling of insecurity regarding the future, especially when the media is interested in the transaction. Dealing with these stakeholders in these limbo moments becomes key, not only for target managers, but also for seller and buyer. This article discusses some of the actions that may be available to such managers as they apply to the specific case of a sale of a non-distressed target to a strategic buyer with overlapping activities and functions.

Perhaps the most important – and challenging – group of stakeholders to deal with during the period between signing and closing is the target’s employees. Negative reactions can be expressed by this group in a variety of legitimate ways.

Employees’ anxiety concerns primarily three issues. Firstly, concerns about the buyer itself: What is their vision for us? Where are they taking our company after closing? Will we like or want to work for them? Secondly, concerns about the buyer’s willingness to retain jobs: Do they have a matching function to mine? Who is my counterpart in their organisation? Are they competent? Will they appreciate my work? Is it only about synergies? Lastly, concern about compensation: If I stay, am I going to be paid less, or more? These are all important questions which, as a practical matter, target managers have very little information to be able to answer adequately.

At this point, a buyer has typically not done any integration planning work. In addition, antitrust rules by and large prevent the buyer from being involved in the target’s activities and having an open dialogue about the future with the target’s employees. In the absence of information, what can be done?

Any good book on leadership will offer many examples to show the value of authenticity in building a sustainable, trust-based bond between leader and team. Along these lines, a (smaller) number of target managers will prefer to be transparent with their team and admit that they simply do not know whether everyone will be fired, for example.

A buyer has an incentive to keep the team intact until closing and so may not look favourably upon target managers who choose to be that blunt. After all, leaders are also expected to provide comfort and serenity to the team during tough periods. Because managers also are unaware as to whether they themselves will have an opportunity or desire to stay post-closing, some will elect to avoid giving any answers or admit they have been briefed on any specific plans of the buyer post-closing. However, humans capture messages way beyond the words they hear and, therefore, neither answer is effective to align the interests of buyer, seller and management.

Monetary incentives payable to key employees post-closing naturally help to retain some people. However, key talent retention has a lot to do with deeper alignment with the company’s mission, vision, culture and long-term projects, all of which are in employees’ minds to a large degree, subject to potential review, post-closing.

Furthermore, competitors may approach key talent during this period and, depending on the quality or amount of the offer, it may be difficult to convince them to stay. Engagement during this period may be negatively impacted by senior talent departures, as employees fear being left alone with, and less protected against, a buyer post-closing. In addition, relationships may become more hostile where target managers increase pressure on the team to deliver the target’s financial or operational goals, be it to show results to the incoming buyer or to ensure the target satisfies any agreed upon contractual result. Due to all these factors, target managers need to be prepared properly in order to deal with the ambiguous internal dynamics that arise between signing and closing.

These dynamics increase confusion and anxiety. It is key that the target’s senior managers send out one coherent message, as opposed to many. In reality, at signing, their futures and those of their employees are largely outside the target manager’s control. It seems, therefore, that an effective and honest way to address some of these issues is to shift the focus of the organisation to the pre-closing period, rather than to guessing what will happen in the future. In other words, during this period of uncertainty, the company narrative should to the extent possible shift to focus on the target’s performance prior to closing – something along the lines of ‘We should continue to work hard, as we have always done, to beat our goals and bring value to our customers and other stakeholders and to pragmatically comply with the commitments agreed under the purchase agreement. The higher the value we generate, the greater the likelihood they will value our projects and our personal work’.

Naturally, this will not entirely prevent insecurity from increasing or key talent from leaving, but it will renew an honesty-based bond among managers and employees, in that they will face together the more challenging times where there is little information about their future. It will be based neither on false promises nor on a lack of engagement in addressing employees’ concerns with vague replies and, therefore, it will more likely invite empathy and loyalty on all sides, at least until closing, when new management comes in.

Another source of frustration and fear stems from the target’s natural mindset shift from long to short and medium-term projects. In practice, the target’s management during this period has little incentive to invest capital in longer term projects that will not generate tangible financial results when a buyer steps in. Target managers may also decide to cut long-term projects based on the reasonable argument that they simply do not know whether the buyer will be interested in making the same bets in the future. This is even more ambiguous because, at such a point, there is no certainty that the sale will actually close.

To the extent permitted by antitrust rules, contractual provisions and ‘clean team’ structures may try to deal with these situations. But, in any event, a lot remains subject to the discretion of target managers, as they continue to run the company after signing. While it is natural that the bar be raised for target management continuing to allocate substantial capital to any project, they should exercise caution before abandoning key projects prior to closing. Part of the reason has to do with external stakeholders.

Unlike employees, key suppliers or clients may have more leverage at the negotiating table than the target. While target management will normally send out a standard letter on the day the transaction is announced, stating that the transaction will bring more growth opportunities for all stakeholders, counterparts will position themselves based on the signalling effect of the target’s actions during this period. Where the target abandons key projects, certain counterparts may fear for the sustainability of their relationship with the target and may search for alternative players. In this case, subject to antitrust law restrictions, contractual provisions preventing managers from changing the normal course of business and allowing managers to use a part of target’s cash flow generation to retain long-term counterparts seeking to move away may prove useful.

In the same way as internal stakeholders, key counterparts must be addressed with openness and honesty. Managers and shareholders may come and go, but key relationships based on mutual trust, commitment and delivery stay.

Legislation worldwide tends to favour protecting consumers, under antitrust rules, over companies’ employees and their key stakeholders during the signing and closing period, which may reduce target value if the review period is too long and these relationships are not properly addressed. Given the complexities inherent in dealing with human emotions, there is obviously no clear-cut playbook that can be applied across the board. However, the target’s value is more likely to be preserved and difficulties more likely to be reduced, where the target managers adopt one coherent set of attitudes and internal and external messages which are based on a performance-oriented mindset and a respectful dialogue with all stakeholders.


Fernando Shayer is co-founder and CEO of Camino Education. He can be contacted by email:

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