EP 23 | M&A Communication Strategy: How Honest Conversation Improves Deal Success

Why deals collapse isn’t a spreadsheet problem, it’s a people problem.

This episode shows how a seller’s legacy goals and a buyer’s optimization plans create a hidden expectation gap that quietly destroys value. The fix isn’t faster paperwork but with clearer conversations.

You’ll learn how to use a change roadmap during diligence, why earnouts force real cooperation, and what no data room ever reveals, like culture carriers and customer rituals. 

Hear the cautionary story of a seller who assumed a one-year role, never said it out loud, and got cut early. Silence costs deals.

If you’re selling, you’ll get a simple framework for defining non-negotiables and setting realistic post-close boundaries. 

If you’re buying, you’ll get the questions that reveal real operational truth.

Press play to turn closing into a confident transition, not a risky leap.

Transcript

Setting The Stage: Solo Deep Dive

SPEAKER_00 0:01

In the world of business, not all deals are what they think. Fortunes rise, empires crumble, all with a stroke of head. Mergers, acquisitions, hostile takeovers. Welcome to Mergers Wrote, where we examine strategies and stories behind the biggest deal. Because in MA, the real risks are the ones that don't take.

Seller vs Buyer Expectations

Why Change Feels Painful

Contract Protections And Limits

The Rush To Closing Backfires

Missing The “Break Bread” Moment

Post-Closing Roles And Earnouts

A Costly Miscommunication Case Study

Planning Your Post-Closing Reality

SPEAKER_01 0:43

Today's episode is a little bit of a changeup. Instead of having an interview with a guest, today you have just me solo talking with you about things that I see in my practice and in working with clients so that you can better understand andor prepare for a successful transition. So today I feel like the best thing to talk about is lately I have seen over the last probably six months, there's a big disconnect between expectations of the seller and expectations of the buyer. Unfortunately, some of this comes down to communication, but frequently, whenever working with clients that are actively selling their business, a lot of times their perception and plan for their business looks a whole lot different than what the buyer anticipates or plans for. And as much as the seller doesn't want things to change post-closing, they want their employees taken care of, they want their systems to stay in place, they want the way that they did business to just continue. Most buyers have intentions of putting their own stamp on things, right? Changing things up, eliminating potential workers that they don't see the value in retaining, changing out systems, changing the way that they previously done business because they think that there's potential savings. And there's nothing wrong inherently with either side, right? One on the seller side, you've you're essentially leaving behind a legacy, and change is hard, right? Change in any aspect of our life is painful. It's a painful process, even when it's joyful. You can read about it in psychology books. Pain, even when you're buying a new home, you're moving to a new state, you got a new job, you buy a new pet, change can be difficult because it really messes with your brain. Um, there's a whole kind of academic, like we could go down that rabbit hole. Um, and I will just put a pin in it. But essentially, change is hard, right? And so for a seller who has devoted 20 plus years of their life uh to building their baby, building their business, thinking about it being changed immediately after they sell is kind of a non-starter. And so a lot of times buyers aren't very honest about their plans. And there are ways to protect against change, right? We can draft into the purchase agreement that certain things will remain the same, right? Employee benefits or that employees will be retained on the same amount of salary with the same benefits with the same vacation. However, usually a buyer will push back and they'll want some sort of timeline or time frame. Um, you know, or or whatever happens after closing, they want the freedom to make the changes they find necessary to maybe strengthen the business, make some much needed updates to the way that the business is operating. And so lately I have seen a lot of mismatch. And I think some of it is potentially buyers not being honest about what they plan to do because they don't want to upset the seller. Um, some of it is the seller not wanting to potentially rock the boat and ruin the deal, right? And so kind of both sides are playing it close to the vest because they don't want anything to jeopardize getting to closing. And we see it time and again, there is this frenetic pace at which people want to get to closing. They'll start the sale process with a letter of intent, and then there's this gigantic push to just go, go, go, gas pedal all the way down. And I don't quite maybe understand why there's always this need and rush to go fast. I think some of it, I definitely there are situations where it's warranted when someone has a terminal illness or they are you know being deployed. I mean, there's all sorts of situations we've seen where, yes, moving fast is warranted and probably necessary. But if you're not in that category, moving fast, I think, in a lot of ways, makes the deal very transactional in that we're just passing documents back and forth, negotiating the points in the purchase agreement in the ancillary documents, which is a necessary evil, and it also sets the stage for expectations after closing. However, in this rush, we tend to miss out on the breaking bread part of doing business deals, right? Setting aside mergers and acquisitions when you're sitting down one business to another and you're talking about a joint venture or entering into some sort of arrangement where you're potentially going to take technology and bring it into a new market, right? I'm just thinking of a traditional business deal that maybe everyone can wrap their mind around, right? Let's just say, you know, brand partnership between two really large soda companies. Um, no merger, no acquisition, just doing business. And they would never just send contracts back and forth to each other to get this deal done. They would sit down at a big meeting table, probably at someone's corporate office, talk about the details, send some emails back and forth, probably sit down over a dinner or two, probably have a couple of catered lunches, right? There's tons of communication going on between the two businesses. And in reality, that communication helps to clear the way for a deal that aligns with the expectations of both parties. We're missing that component entirely in many deals. And I feel like a lot of people, they go into their corner, they put on their boxing gloves, and they're sort of in this defense mode. And I think part of it is there's a lot of going back to that psychology piece of this, right? Change is hard. You're you're selling something that you're exceptionally proud of, and you want to protect your interests in the process, but at the same time, this mode of operation prevents the two parties from breaking bread, sitting down, having a lunch, having a dinner, maybe having multiples where you talk about the business, they learn about it, they learn about your values, your culture, things that will help the buyer after closing to have a successful business and continue operating your business successfully, I should say, but also to really set the tone for how is this going to work? Because 99% of the time, sellers are going to stay on board and help with transition, whether that's 30 days, which is the shorter end of that version, or up to one year after closing, right? Almost every seller is going to have some sort of post-closing commitment to help make introductions to clients, to break the news to employees. Hopefully, you've probably teed that up a couple of days before closing so that not everyone is completely shocked. But all in all, you're going to be working together, um, hopefully in a very congenial manner in the time period after closing. And if you have an earnout, right, and we can go in on another episode in detail on what an earnout is and whether you should have one or not. But plainly and simply, an earnout is really just a mechanism for when the business, they're not entirely sure whether the business will continue to perform at the same level as prior to closing. A portion of the purchase price can be earned based on what is the revenue and the revenue target. So essentially, there's a built-in mechanism into the purchase agreement that says here's our target revenue based on the past three years or five years, depending on how you look back at it. Some of them are trailing 12 months. And so it's very kind of my way of saying is very customizable, but essentially making sure that your business continues to do well in the hands of the buyer can make a huge difference on how much money you receive as part of that purchase price that's been held back, right? And so I think all of this to say, I think we need to break more bread uh between the two parties. I just think it's a necessary evil. Given a recent example, um, you know, it doesn't matter what you sign at closing. If someone is not on the same page as you, I think that there's going to be turmoil, right? So a couple of people closed a deal. One party, the seller, had agreed to stay on for a year. And in their mind, they wanted to be on for a year. And they never communicated that to anyone. Not to the buyer, not to any of the council, not really to anyone, but probably just internal dinner conversations between the partners selling the business. And so when the time came, you know, there was an out that they could be essentially terminated during the consulting period post-closing with 30 days' notice. And the buyer elected to exercise that right. And it just created havoc because the sellers had this sort of hidden or I guess just simply not communicated expectation that they would continue to work in the business for one year after closing. And they didn't really think that the buyer would ever terminate them before that time period because they viewed it as a benefit. And so, you know, I think this is a strong example of how, as a seller, you've got to be honest with yourself. What does post-closing look like? Are you selling because you're just done with the business and you want to only do a small amount of transition work? If you don't have an earnout, there's probably a whole lot less uh motivating you to stay on and and you know do the right thing, which is continue to help the buyer operate the business post-closing. I know I've met my fair share of sellers who are just mentally spent, right? They've waited way too long to sell their business. And by the time that they decide to sell their business, they're very much done. And unfortunately, when you've reached that state, you don't have the bandwidth to really spend the time and energy that you really should, and for the benefit of the buyer, to make sure that the business continues to operate smoothly as it transitions ownership. But I think, you know, generally speaking, if we did break more bread, what could that conversation look like, right? Maybe the conversation could have been we feel strongly about staying on for one year. We want to stay on for one year, we want to help, we want to make this transition seamless. We want to work with you to make a public announcement to all of our clients so they don't have whiplash and are freaking out because a new owner is all of a sudden announced to them without really any warning. And we all know, you know, you see the same doctor every year typically, right? And if you walked into the office one day with a doctor's appointment and you had it with your previous doctor, and they were like, oh yeah, hey, I am so sorry to tell you this, but your doctor retired, and we have a new doctor that can see you today, and that's that's who we have you scheduled with. Can you imagine how upset you would be? I mean, you would probably, because you're already out in the office, just go through with it. Um, maybe not. Maybe you would say, Well, I don't know this person from Adam. I'm gonna do my own research and decide who I'm going to have take care of me from here on out. But you can imagine how upsetting it would be to essentially be told you just have a new doctor on a random day instead of perhaps an easier transition, which is, you know, providing notice to patients, right? Um, and I'm just using this as an example, but there is certainly an art form to the transition at closing, you know, the the changing of hands of clients from one provider to another. And there's there's a way to communicate it that does not create panic, but it also requires collaboration. It requires the two parties to be working in a manner that is really meant for the good of the business, not really the good of either party. And so I think a lot of people when they go into this idea of buying and selling businesses, there's this piece of it that's missing that's the human nature. And, you know, my effort a lot of times is to slow people down. I want to, I don't want to stand in the way of any deal by any means. And we typically work at a pace that even I'm like, we should pump the brakes. Let's make sure we're making the right decisions here. But at the same time, I understand and appreciate there are key deadlines for so many businesses, right? That the tax deadlines can be an important drum that beats for us to get to closing the end of the year is a super common one. We see this every fourth quarter. Sometimes it is the big life things, right? Someone having an illness or you know, having some sort of need where they just they have to move. Um, I've seen that with a brick and mortar business, and they have to care for an ailing family member in a different state, and they just simply cannot figure out how to continue operating this business from afar. So, all this to say, I think if you are a seller and you're listening to this episode, I would highly recommend sitting down and thinking long and hard and then writing it on a piece of paper, right? I'm a big fan of journaling. What is your expectation for the buyer? What do you want? What do you envision that buyer doing after closing? Do you envision them working hand in hand with you? Do you imagine sitting down at the table with the buyer by your side and introducing them to your best and favorite clients? Do you imagine going on job sites with them? Do you imagine participating in putting together RFPs or quotes, right? I'm trying to hit all the uh potential ways that you could different across different industries. But what does this look like? You know, no different than planning the goals in your life. What does the closing look like? What does it look like to work alongside the buyer after closing? And and what's important for you that should stay in place, right? Should all of the employees stay? Um, do you know if there are certain employees that maybe that's not so critical in your business? And so maybe it's just key employees. Is there certain ways that you deal with clients that have just worked for you that maybe would benefit the buyer to appreciate and understand so that they don't modify the business in a way that detrimentally impacts it? And and really, I think after you've written all this down, I think you should schedule a call, schedule a lunch, schedule a dinner. I think personally, based on all of the business deals I've been a part of, getting a meal together humanizes the parties in a way that just cannot be replicated by phone or by Zoom. And so, to the extent that you can, whether you have to fly to a different state or you just simply need to drive across town, I would highly recommend sitting down over lunch or over dinner or over happy hour, whatever suits your fancy, and talk about your business, gloat about your business, right? This buyer is already buying it. They already have the LOI in, right? Um, don't do this without having the LOI or the NDA in place, right? Those are two key components here. Don't sit down and tell, you know, tell all your secrets to a potential buyer. I want you to be telling how great your business is to your actual buyer that's going through this process and who has signed a non-disclosure or confidentiality agreement. But I think sitting down and having these talks, right, you're gonna gloat, you're gonna talk about what your vision is. And in the process, the buyer is going to meet you. They're gonna meet you somewhere. And and the more honest and vulnerable you are in your vision, the more they can be in return. And so I always think playing it close to the vest inherently leads the other party to do the same. You know, think of uh a poker game, right? Um, it's probably a bad analogy, but you're not gonna share any details of what your plan is with anyone. And that would give them the upper hand. And I appreciate that in any sort of sale of business, there are certain things that you want to keep and maintain during the negotiation phase that perhaps would give you a benefit in the long run, right? Um, but generally speaking, I think that you're going to allow the buyer to go through diligence anyway. And so, what is the potential downside of letting them know how amazing your business is and what your vision is for the future operation of the business and how you can help and how you can stay on board? Now, flip side, maybe you don't want to do any of that as a seller. Maybe you want to do 30 days of transition support because that's the minimum that the buyer wants from you, and you want to be done. That's probably something you should tell the buyer too, because if the buyer is assuming that you're going to be around for a year and you really only want to be around for 30 days, then you know there's this mismatch that after closing, it's going to cause ripples. And you're better off ripping the band aid off. During the deal and potentially finding out that you're on totally different ends of the spectrum than to close the deal and find that the two parties just simply can't work together because you're just on two totally different pages. And I think too, you know, I've been talking about this from the seller side, but let's look, you know, briefly from the buyer side. I think as a buyer, you always want the seller to be honest. You know, part of that is the reps and warranties, but I think generally speaking, you want to know as much about the business you're buying without the puzzle pieces of diligence, right? I think most buyers are like, okay, I'm gonna go through diligence, I'm gonna learn everything I can about this business through diligence. It's simply not possible. You're going to get contracts, you're going to get the financial statements, you're going to get the employment documents, you are going to look at permits, organizational documents. It is all great stuff. Don't get me wrong. You need to look at all of those things in order to make a complete and sound decision about whether to buy this business. But I say this with a big butt. You also cannot learn all of the intricacies about the business, the culture, how the employees work together, what the goals are of the company, what have been the goals of the company? Has the leadership been one where employees can make suggestions and people set goals as a group? Or is it more top-down leadership where people are very siloed, right? I mean, these are all super critical things that you can't learn from diligence documents. And so sitting down with the seller and learning from them how the business works, how the employees work together, what the clients are like, what the what the day-to-day operations look like, you know, what are the ebbs and flows? Is there seasonality? Obviously, some of that you can see from the financial statements, but perhaps you're a buyer that's never been in this industry, which I think is always a dangerous game to play because being in an industry or a space that you're most familiar with is ultimately the best possible way to set yourself up for success. However, thousands of people every year buy businesses that they've never ever operated one in that industry before, and there's nothing wrong with it. And I celebrate every entrepreneurial journey. However, in those cases, this idea of breaking bread and sitting down over lunch, dinner, or happy hour and learning the intricacies of the industry itself, right? Um, learning, hearing stories from the trenches, right? Maybe um thinking about the trades world, right? Maybe you're buying a pest control company and you've never owned a pest control company. It's not rocket science, but you probably should get some 411 from the buyer or from the seller, I should say, uh, and and learn sort of is there seasonality to it? How do they get their clients? What is the marketing like, right? Because you take over a business with an existing book of clients, great. Inevitably there's some attrition, you're going to lose some clients, not just because it's a new owner, but because people leave every year. It's just a part of business. However, if you don't know the marketing machine that's working in the back end and you start scrapping things because you're like, wow, you're spending$10,000 a month on advertising. That's wild. We're gonna cut that out. You find out that the$10,000 in advertising is what makes every single lead come in and build the business in addition to all of your recurring business, then that's a problem, right? And so these are things that maybe you could see a contract in the diligence room that is for advertising or working with a PR company or something like that, but you're not gonna know these types of details without breaking bread. And so I think generally speaking, I have I've probably gone on too far of a tangent, but I think without sitting down and having some honest conversations and also thinking about this more like a collaboration, a partnership, than it is a passing of the baton and then just a, you know, washing of the hands and moving on to the next chapter of your life. This is something that you're working towards a goal now, but the closing date is really not the finish line. It's really just the mile marker in a journey that continues after closing, where the two parties will continue to work together. And ultimately, how well that works together could jeopardize how much money you make from your business and the sale, right? If there is an earnout or a holdback, right? We'll talk about that in another episode. But I say all this because I think some of this is avoidable. I think some of the disputes, the anger, the emotionality associated with the mismatch of expectations between buyer and seller is something that is completely 100% avoidable. And unfortunately, some of it is just about having hard conversations, right? Being honest about what you want for your business when you're selling it. And on the flip side, being honest with the seller that, you know, hey, I feel it's important that I make decisions about what employees remain after closing. I want to do but right by you. I know you have loyal employees, but at the same time, if there are a couple of employees that I don't think are are carrying their weight and are weighing us down, I think, you know, I should be on the right to make those decisions as the new buyer. And and you're gonna make those decisions, especially during a transition period where the previous owner is probably still working right there alongside you. And so even if you hide it during the negotiations, it's going to come to light during that transition period. And then all of a sudden, can you continue to work together? See it so many times where a seller just decides to stop supporting the transition support. Um, they just stop showing up, they stop returning phone calls, they ghost on email. And it's because they're angry, right? Uh, they're angry about the changes that are being made, they're angry about the way that the buyer has continued to operate the business. And I think so much of this strife can be avoided in the long run if there's just more open and honest communication about your expectations. And and honestly, I say this with love. A lot of the boomer generation, you know, I think they need to be a little bit more honest about their own emotions. I know it can be tough, and I think that plays a role, right? There's a lot more of the boomer generation that is selling their business to a younger generation, Gen X, millennial. And that mismatch also makes it difficult because the generations do communicate differently. And it's possible that, you know, if you're a buyer and you're from a different generation, you're going to have to poke and prod with questions to get to the bottom of things, potentially, if a seller can't be honest with themselves or honest with you. And I don't think it's harmful to come up with pointed questions that maybe are a little uncomfortable that you can ask during this lunch, happy hour, dinner, you know, seller, what does this look like for you after closing? Do you are you capable of providing support to me for six months, one year, right? Whatever your timeline is. You know, what do you what was your vision when you started, and what is your vision selling to me as your potential buyer? And and some of these questions maybe they won't have answers to, and and that's okay, but starting the conversation is what's important and continuing that conversation, right? It's not a one-and-done meeting. Continue to work together. I also think that the ability to sit down and have lunch or dinner and have these honest open conversations, or maybe uh an interview, right? Uh, think of it like an interview and let them talk about themselves as the seller. It's always a positive um experience for a seller to get to talk and gloat about their business. But also, this isn't the end, right? You're continuing to work on negotiations through counsel, through potential brokers. And so I think this sets the stage for a better negotiation process, right? You're both on the same side, you're both eating the same pie. And so you're really just divvying up the pie at the dinner table. You're no longer mono-imano in the boxing ring. And I think it also, because of the humanization, I think it makes going back and having follow-up conversations about the tough things that perhaps you two don't agree on easier to overcome because you're like, hey, Jim, let's have a chat. Like, I can't, I can't agree to this term, and and you know why. And but I want to make you happy. So let's hop on a call, let's sit down, let's go grab coffee, and let's figure out how we meet in the middle on this. And it just changes everything. So that's my TED Talk for the day. I I hope you enjoyed it, and we'll be back with more radio talk show versions of Merger She Wrote. If you like this episode, please like, share, or comment, and tune in next week. I'm Pilomacoggins. This is Merger She Wrote.