Why Confidentiality is Paramount

One of the most critical aspects to executing a successful sale of a business is maintaining confidentiality throughout the entire process. This concept may seem obvious to some, however a breach of confidentiality can negatively affect the selling price, derail a deal altogether and cause irreputable harm to the business itself. It is for these reasons that it is imperative that you and your M&A Advisor take all the right steps to protect your confidentiality from the very first contact.

What can go wrong?

Employees are the lifeblood of your business. They are an essential part of your day-to-day operations and will be a valuable component to the new ownership. Not only is the timing important regarding when you advise your employees that you are selling your business but how the news is presented is equally important. If somehow the news leaks out too soon, some employees may become spooked and look to leave. Self-preservation is human nature, and if employees perceive that their jobs are in jeopardy, they will look for stability elsewhere. On the other hand, if the information is presented properly at the correct time during the transaction process, they can be assured that their personal interests are aligned with the new business owner’s. Instead of fear and paranoia, they will feel secure and excited about their new opportunity.

Customers want to know that the companies they do business with have a solid foundation and will be there in the future for any needed support. If your customer base prematurely hears rumors about your company being on the market, they will immediately fear the worst and become concerned about the company’s viability. They will then start searching for alternative suppliers in an effort to protect themselves. Properly planned and timed announcements, however, will have the opposite effect. The customers, being fully informed of the situation and properly introduced to the new ownership will feel comfortable and secure moving forward.

Vendor relationships are built and nurtured over many years. There are few things that can wipe out those many years of goodwill faster than a vendor catching wind that that a company is for sale. Deliveries could be suspended, and credit lines could be terminated. All this because proper steps were not taken to assure confidentiality. With the guidance of your M&A professional, disclosing the details of the sale to your vendors at the right time will assure continuity and the proper transfer of the goodwill that you worked so hard to build.

Negotiating Leverage with potential buyers will be lost if word gets out that the business is for sale. Once the confidentiality is breached during the negotiating and due diligence period, the seller’s position is significantly weakened. Obviously, this is a position that the seller will want to avoid at all costs. Proper preparation and direction from your M&A professional will help to protect you from this situation and maximize your return.

What can be done to maintain confidentiality?

First and foremost, hire a qualified Advisor. In addition to providing essential guidance, leverage and resources, hiring an intermediary will enable you to detach yourself from the process and will allow your M&A Advisor to act as your buffer. It is impossible for you to maintain confidentiality if your name and number are listed as the direct contact as you attempt to market your company. A qualified M&A Advisor will take the subject of confidentiality seriously. Make sure to discuss this when interviewing your advisor to assure that your priorities align with each other.

Keep your inner circle small. The fewer people that know of your intentions to sell, the easier it will be to keep that information quiet. Discuss this with your M&A Advisor to determine and confirm exactly who is aware of your intentions and who is not.

Proper marketing documents are essential and will enable your M&A Advisor to properly and aggressively market your company while maintaining your confidentiality. A Blind Profile will be developed to share just enough about your company to pique apotential buyer’s interest without giving away the identity of the company. A second document called the Confidential Memorandum will also be developed by your advisor for interested parties that would like to take the next step, and as its name infers, will share more intimate information about the company for sale. However, this Confidential Memorandum should not be distributed freely.

A strict vetting process should be executed before the Confidential Memorandum is shared. This process should include a strong Non-Disclosure Agreements (NDA) along with financial and managerial background checks. This will not only protect the business owner’s interests by maintaining confidentiality but will weed out the seriously interested parties from the “tire-kickers.

Communicate discreetly. Use your private cell phones and make sure your phone calls cannot be overheard. Use personal email accounts to communicate with your advisor. Having your advisor/intermediary manage the process will help to insulate you. When it comes time to meet potential buyers, try to meet off-site or after-hours when employees are not around. Also, be aware and be diligent in not leaving any paperwork, business cards or notes where they can be seen. Paying attention to these details will enable you to maintain confidentiality until the transaction is successfully completed.

Selling a business, in most cases, is the culmination of many years of hard work building and nurturing your business and should be a one-time event. Executing a successful sale of a business involves a complicated and detailed process which requires the coordination of many moving parts. Maintaining confidentiality is a critical piece of the process that cannot be overlooked. All aspects of the process as mentioned above need to be carefully planned and implemented. An experienced M&A Advisor will properly drive this process and in doing so will make sure all the appropriate measures are taken to protect your confidentiality leading to a successful sale that will maximize your financial return.