Smart Lemming Diary: Initial Merger and Acquisition Talks, Is an Acquisition on the Way?

bridge-between-groups

What goes through an Executive team’s mind when their company could be acquired? What happens during initial talks during the acquisition process? What’s a letter of intent? Do they worry about having jobs in the new environment?

Below is my journal entry from a key time when I was a VP of Sale Operations and Marketing, facing this business situation.

July 15, 2006

More Safe House Interviews

After returning from vacation, I was back in the office Tuesday relaxed and de-stressed. When I left for vacation, I was poaching another person from my previous employer. The day I flew into Honolulu from Kauai, my CEO did a phone screen of the candidate, who passed with flying colors. My CEO also exceeded my former colleague’s expectations as well. I resumed coordinating the interview loop, so now this person will be in our office next week for another round of talks.

Who will blink first?

Days before I went on vacation, one of our Channel partners signaled to us that they want to discuss an acquisition. Silently, the CTO and I sat in on conference call that the CEO and Controller had with the other potential acquiring company’s M&A team.

After going through this process earlier in the year, it’s interesting to go through process again. The M&A team kept trying to get my boss to mention “acquisition” or “letter of intent (LOI),” but he wouldn’t. He held his ground, letting them know we were in an excellent position with the right channel partner, connecting how they were a perfect acquirer. Frustrated, they had to be the first one on the call to signal that they want to take the discussions down the due diligence path, but never mentioned the terms “acquisition” or “LOI.”

Preliminary Information Request

My CEO also left on vacation after the call. He emailed us a homework assignment with preliminary questions that we needed to answer for the M&A team. The Controller, CTO, and I have divided up the work; it should be done by the time he gets back.

Are we out of a job?

The Controller and I had a chance to catch up, while also privately discussing the potential acquisition. If this Channel partner starts the LOI process with us, then our CEO will signal to our other Channel partner that someone wants to acquire us. I have no doubt this could cause the acquisition to accelerate, similar to what happened with my startup.

The two Channel partners are extremely different. Let’s assume either one of them acquires us. If it’s the first one, then the LOI process would take greater than 90 days, maybe less. The transition would be longer and most of the staff would, including the two of us, would most likely remain in our positions after the acquisition.

However, if it’s the second channel partner, then the LOI process would be typical. But, their transition would be well planned with milestones and a target date for a completion transition. In this scenario, the Controller and I would be out of a job. I’m okay with it, but it’s making my work buddy a little nervous, but he’s still excited and completely supports the process.

During this conversation, I realized that our lead investor and Board chair talked some good talk about keeping our Executive team intact for our next gig. But the Controller and I realized that three of us on the team don’t have the industry expertise required. Realistically, we’re not counting on it.

Food for Thought

When a company’s being acquired, the Executive team’s is committed to moving the deal forward. They’re laser focused on compiling the data and information required by acquiring company, so the process can move as fast as possible. Sometimes, a huge hurdle is the initial discussion, where someone has to blink and finally say, “letter of intent.”

The LOI is issued as an acknowledgment of the fact that an acquisition is being considered seriously; it’s not a contract, but a document stating intent to carry out certain business activities. LOI’s don’t commit either party to purchase, sell, or lease. In this case, the acquiring company doesn’t want to lose their negotiation position or look too eager, so they don’t want to say LOI too soon.

Our job on the Executive team is to get them to admit it, move forward with the process by weighing the pros and cons with our lead investor, and decide if we’re going to sign the LOI. If that happens, then we go down the due diligence path. But we’re not there yet.

Do we worry about having jobs after getting acquired? Yes, but our duty is to the company, setting aside our personal fears, to ensure the process moves forward. Am and I concerned? Yes and no.

I love this company. I want to work for it as long as I can. However, I still have to move to Manhattan in the fall and don’t know this change will impact my ability to continue working. All I can do is my best work to help my CEO get his exit through acquisition like my partner and I did with the sale or our company to MTV Networks.

The Smart Lemming Diary is a series that chronicles a journey of laid-off worker, who becomes a Vice President of Sales Operations & Marketing for a small entrepreneurial healthcare technology company. For previous entries in this series, click here. For the first diary entry, click here. For the highlighted Smart Lemming Diary entries, click here.

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