The market for mergers and acquisitions is running hot at the moment with daily reports of successful deals. Today, for example, Transfield Services subsidiary APP Corporation has bought Sydney commercial real estate agent, Chesterton International (NSW), the Australian Financial Review reports.
But not every deal ends happily, the AFR also notes. Brambles has failed to find a buyer for its documents management business, Recall; Next Capital can’t offload Onsite Rental Group; and, Harbert Private Equity, an investor in skincare group, Aesop, has not yet sealed a deal. If Woolworths decides to keep the electronics dealer Dick Smith, it “won’t be a huge surprise”, the AFR opines.
Companies sell parts of their business for all sorts of good reasons, but the impact of selling — and of failing to sell — can damage operations, profits, productivity and morale, experts say.
“One reason to sell is just simply that the management has a limited amount of time,” Melbourne Business School’s Doug Dow tells LeadingCompany. “So they have to decide on priorities. It may not be that the business is lousy, but that it doesn’t sit as well with what they are doing, it is not a priority. That is how you can often get profitable business being sold off.”
Companies often vacillate between diversification and consolidation strategies. Diversification reduces risk; consolidation increases focus. “When diversified companies get into research, they look at who is the best organisation to own this business,” Dow says. “Do I bring special skills to the business or do we bring nothing to the business? CSR might look at whether they bring anything to their mining businesses, for example.”
While these are sensible strategic reasons for a sale, and do not reflect on the quality of the company that is on the market, just being up for sale can tarnish the company’s brand. And it can lead to internal chaos.
“Imagine how demoralised you would feel internally when the company that owns you doesn’t want you anymore,” says Dow, who has been through the experience. “It is very detrimental.”
The more public the sale process, the worse for the target’s brand and its people. As soon as the company is turned down by the first potential buyer, it starts to lose negotiating power, Dow says, which is why so many are “trade” sales – a deal done privately between companies.
Jasmine Sliger, an organisational psychologist, has specialised in preparing divisions for sale or merger over 31 years. “We get together a working party, with three executives from the top of the company, sometimes including a board member and sometimes not,” she says. “Then we spend hours and hours looking at communications issues – what is the way to communicate this thing – because what gets lost most is momentum and productivity, and that is a key issue.”
That presents a quandary for leaders: they must try to keep the sale process out of the public glare while at the same time communicating the sale strategy clearly and openly within the company. “They hire someone like me, and we begin to anticipate who is going to be threatened, who will gain, and how we will deal with all of them,” Sliger says.
Brain Gardner, managing director of career management company, Donington, says it is important for leaders to be honest about what is happening, even if the message is that they do not know, or cannot say. “Often the senior guys don’t know more than the junior guys but they make like they do,” he says. “People are not stupid. They will be evaluating their own situation and what it means for themselves and the company.”
Instead, leaders must try to get everyone to understand the strategy behind the decision to sell, and get their buy in.
Says Sliger: “In one company, it was an IT company, I had the chair of the board come in, meet the executive, and then he did a company-wide announcement, explaining what the issues would be, and how everyone needs to keep their eye on the ball and not lose sales and productivity.”
But what happens, then, if the sale falls through?
Gardner says it is crucial to realise that some staff losses are inevitable whether or not the company is sold. “In the years I have been working with people in charge, I have realised that we desire certainty but there is none. So, we simply have to see it as an opportunity rather than a challenge, and the best leaders will give their people information and skills to be resilient about change.”
Individuals will decide whether or not they are still happy to work for the company in its new iteration if their leaders encourage them to engage in that kind of reflection, he says.
“Organisational changes always leads to victims, so it is about supporting individuals in change. Then they come away knowing more about themselves and what they do and don’t like. Change is part of the reality of corporate life.”
Both leaders and their staff must understand themselves as individuals before they can decide if they are still aligned with the company, sold or not, Gardner says. “We run change recovery workshops and what I am seeing, way more than survivor guilt, is survivor envy: ‘I wish it had been me who was made redundant.’ You either re-engage with the company or you step away.”