What’s trust got to do with it?

Imagine how difficult it would be to proceed through an acquisition with someone you didn’t trust. Every step of the way, both parties must have confidence that they are sharing information with a trustworthy person or entity. With current limitations on travel to “in-person” meetings, I continue to hear how much more difficult it is to build a trusting relationship.

I believe a key missing component is that all-important body language. Body language has been found to convey 55% of a person’s meaning. It’s no wonder that we miss our ability to deal with each other in person.

Fortunately, buyers, sellers and their advisers have Zoom and other technology tools that allow us to meet “in person” virtually. There will always be a need for at least one actual “in person” visit for the buyer to meet the owner and see the seller’s facilities and tour select client properties. The good news is that the balance of work that might previously have been done in on-site meetings can be done via videoconferencing. Here are some critical times in the process when you want to be able to have trust in a deal:

Exploring your options.

You decide to explore your options — you may or may not sell your company, but you don’t want to sound the alarm by having word get out in your community, especially your employees and clients. Choose an adviser that you trust.

Showing your company information to buyers.

Before you share any of your company information with potential buyers, your adviser will collect a signed Confidentiality and Nondisclosure Agreement (NDA). In this document, the prospective buyer agrees to not use your information against you. It helps if you and your adviser have a good sense for the buyer who will receive the information. You don’t want to release information to potential buyers you don’t trust.

Sharing basic information with potential buyers.

After the NDA is signed, you will share certain “big picture” elements of information about your company including your company name, gross margin, number and type of clients (no names), organization chart (no names), etc. This allows the buyer to decide if your company is a potential fit with their needs. If they are interested, there will probably be an additional exchange of information and even a conference call and/or meeting.

Signing a letter of intent.

The buyer has enough interest to make an offer on a preliminary basis with conditions. At this stage, it’s customary for the buyer to include a “no shop” provision where you agree to discontinue the buyer search while this buyer proceeds with due diligence toward closing. This may last for 90 days or closing.

Entering due diligence.

With a signed Letter of Intent (LOI), every detail about the business including past years and future projections for performance, clients, employees, risk profile, etc., will be scrutinized.

Purchase agreement and ancillary document negotiations.

While the due diligence is proceeding, the attorneys will draft the documents to outline all the terms of the deal. There is a level of negotiation required at this stage, mostly related to how risk will be allocated between parties for prior actions and how future issues will be handled. A seller who does not have trust in their buyer relationship can feel vulnerable at this stage. Sellers who trust the buyer can cut through any sticky issues and resolve them in good faith.

Team meetings and integration planning.

During the transition planning phase, more connections are made between the companies to enact the change. Accounting and finance, IT and HR teams will be preparing for the announcement. Executives will be drafting communication pieces and strategy. Hopefully, the relationship has been built between leaders and those individuals will continue to build the trust across the rest of the company.

The bottom line is that trust is an essential part of any relationship between people. When it comes to buying and selling companies, trust can make or break a deal.

Contact Alison Hoffman at Harvest@giemedia.com