February 9, 2023
Confidentiality is Vitally Important When Selling a Business
By Michael McEntee
During a successful business transfer, confidentiality must be of paramount importance to the seller. All of the processes, recipes, formulas, contacts, and other sensitive information (the very foundation of a company’s achievements and profitability) will, at some point, need to be disclosed. This can also include knowledge that an aggressive competitor has been trying to obtain for as long as a business has been in existence. Keeping it out of predatory competitors’ hands and still getting key information in front of the greatest number of qualified potential buyers becomes the challenge. Sellers must also avoid concerns developing that ownership will not be there in the future to personally service and support the product, potentially affecting current business activity. Nothing positive occurs when loyal customers, long term suppliers, or covetous competitors even suspect that a business is for sale. Every M&A firm will claim that it will protect a company’s identity and confidential information. However, in our experience, we have found that our competitors’ efforts do not approach the rigorous confidentiality standards that we believe are necessary and have set for ourselves and our clients.
For most owners, selling their business happens only once in a lifetime. The entire process generally takes between eight and twelve months from initiation to settlement. During this time, the business will still be operating as usual. The owner needs to have complete focus on running the business without the distraction of finding and negotiating with potential buyers. When the business owner ultimately determines that a sale is warranted, deciding which mergers and acquisitions firm is best positioned to advise and successfully manage their transaction, is critical. Confidentiality needs to be a major consideration when making that decision.
“Our first objective at our firm is to establish the fair market value of a business by engaging the services of a certified, independent third-party valuation company”, states Achim Neumann, President, A Neumann & Associates, LLC, a leading Mergers & Acquisitions firm and Business Brokerage, headquartered in New Jersey. He continues, “Using that fair market valuation as the foundation, we begin the marketing process by creating a Blind Profile”. This document is a summary of a company’s activity, which includes a very general description of its industry and geographic location, (example: located in the Northeast), as well as very detailed information about the company’s revenues, profitability and expected future performance.
Our dedicated buy side team circulates this document to a wide range of potential investors using our extensive data base of over 850,000 client contacts, built over the past twenty years. In addition, targeted phone calls and direct US mail notifications are sent to clients known to have interest in specific businesses so that we get maximum buyer exposure for every company that we represent, however, always in a confidential manner.
In order for any potential investor to receive additional information about a company beyond the blind profile, the investor must first go through our very specific four-step buyer prequalification process. We require interested investors to exhibit prior management experience that qualifies them as genuine candidates capable of taking over and successfully running the business being offered. We require each to submit a financial statement showing that sufficient assets are available to qualify said investor for the SBA loan or other financing required to complete the transaction if a purchase at fair market value is arranged. We further require each interested investor to submit a bank statement showing that sufficient funds are available for the down payment necessary to complete a purchase of the business at the established fair market value. Finally, each interested investor must sign our very strict three-page non-disclosure agreement detailing the potential consequences of releasing any non-public information about our client.
All four of these things must happen before any interested investor can receive the Confidential Memorandum. This document is approximately thirty pages in length and contains all of the information that any investor will need should he or she decide to engage in negotiations towards the purchase of the business. By this time, our buy side team will have had numerous conversations with every contender for that business, further screening each, and narrowing the field of acceptable candidates. We will relay all of this information to the seller so that together we can decide which of those candidates should ultimately be introduced to the seller and seriously considered as a potential buyer for the business.
All of our documents are signed with a wet signature. They are not simply released with the on-line click of a mouse and without proof of sufficient funds, as we have seen is the case with some of our competitors. That method of faux confidentiality frequently breaches the barrier that we feel is necessary to protect a seller’s most sensitive information. Rather, it has the effect of unnecessarily exposing that information in the marketplace and potentially lowering the ultimate selling price of the business.
The sale of a business is a serious undertaking. From conception to ultimate sale, an owner must constantly strive to improve his or her product or process, in essence, trying to make the current version obsolete. Continually creating a better product or a better process strengthens an owner’s chances of maximizing the value of the company by demonstrating superior long-term performance. At no point in the life of the company can a lack of confidentiality be allowed to jeopardize this performance, and at no time is that a more important consideration than when the company is in the process of being sold.
Confidentiality is extremely important and is a major priority at A. Neumann & Associates. It is always top of mind in our dealings with sellers, buyers, and with those clients who engage us to assist them in determining the value of their businesses for planning purposes. In our opinion, you can never be too careful and that is why our standards are so high.
About A Neumann & Associates, LLC
A Neumann & Associates, LLC is a professional mergers & acquisitions and business brokerage firm having assisted business owners and buyers in the business valuation and business transfer process through its affiliations for the past 30 years. With an A+ Better Business Bureau rating, the company has senior trusted professionals with a deep knowledge based in multiple field offices along the East Coast and has performed hundreds of business valuations in its history. The firm’s competitive transaction fees are based on successfully completing transactions. For more information, please contact A Neumann & Associates at 732-872-6777 or firstname.lastname@example.org
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