One of the first questions owners ask when they decide to sell is when to tell their employees. The most common answer is at closing, and most owners follow it. We'd estimate that 90% or more of the owners we work with wait until the deal is done before telling the broader team.
There are good reasons for that. A deal isn't certain until it closes, and word of a possible sale can unsettle employees, reach customers and find its way to competitors.
Waiting until closing doesn't mean the owner runs the process alone, though. Buyers ask for a great deal of information, and they need to get to know the people who'll run the business after the owner steps back. That's where the idea of the "tent" comes in: the small group of people brought under the tent before everyone else.
It's also worth remembering that if you've run the business for decades, your employees have probably already wondered what happens when you retire. When the news does come, it often lands as more of a relief than a shock.
Who Belongs Under the Tent
The tent should be the right size for the transaction. Bring in the people the process actually needs, when it needs them. In our experience, the people brought under the tent take that trust seriously and keep the sale to themselves.
Your finance lead. This one is almost always necessary. Diligence is a lot of work: monthly financials, customer and product margins, receivables agings, payroll detail, and a steady stream of follow-up questions. Without a controller or finance manager under the tent, the owner ends up doing it at night or diligence slows down.
Your key manager or successor. Most buyers keep the existing management team in place, so they need to get to know the person who'll run the company after closing. A buyer's confidence in that person often shows up directly in valuation and terms.
Your sales lead, in some cases. When customer relationships are central to the business, a buyer may want to understand the pipeline, key accounts and pricing from the person who manages them. Whether the sales lead needs to come in, and when, depends on the business.
People are usually added to the tent in phases. A successor or key manager and the finance lead often come first, while you're preparing to go to market. Once a letter of intent is signed and closing gets closer, buyers will want to talk with more of your people, such as a sales lead, operations managers or long-tenured employees. The tent grows as the deal becomes more certain.
Protect the People You Bring In
The people under the tent are taking on extra work and some personal uncertainty. They may wonder what the sale means for their own jobs. It's worth addressing that directly.
Many owners put a confidentiality agreement in place and offer a transaction or stay bonus tied to closing, and sometimes to a period after closing. A bonus recognizes the extra effort and gives key people a reason to stay through the transition, which buyers like to see. Expect to fund it yourself, since the seller usually ends up paying these bonuses. Have your attorney help structure it.
Be clear with each person about what they can say, to whom, and how to handle questions from coworkers. Have an answer ready for visitors, too. In a small company, people notice buyers and accountants walking through the plant, and that gets harder to explain once diligence picks up.
On most of our transactions, the owner tells employees at closing, and a few people are brought under the tent earlier. The finance lead is nearly always one of them, because the volume of diligence requests would otherwise fall on the owner. A successor or key manager is usually another, since buyers want to meet that person before they commit.
In one transaction, our clients took a different approach. They'd run the company for more than 20 years, and with about 35 employees, new faces got noticed quickly. So after signing a letter of intent and completing some initial diligence, the owners sat down with all of their employees and told them about the sale. Over those two decades they'd built a great deal of trust, and the employees trusted them to do the right thing. They did, and it worked out great for everyone. It also meant we could visit the plant without pretending to be insurance agents.
That approach isn't for everyone. It worked because the trust was already there. Without it, an early announcement can lead to departures, rumors reaching customers, or a distracted team at exactly the wrong time.
Plan Your Tent Before Going to Market
Before starting a sale process, owners should decide who needs to be under the tent, when each person comes in, and how those people will be protected and rewarded. It also helps to sketch out how and when you'll tell everyone else, whether that's at closing or earlier.