You can’t believe it! You decide to sell your business, and the next day, half the city knows you’re trying to sell. What effect will that information have on your employees, vendors, competitors, and customers?
This is a real concern for owners once they decide to sell. The next thing they know is that everyone in the free world knows their intentions.
How does that happen, and how can it be prevented?
To make the best possible decisions for their families, their companies, and themselves, owners must discuss their plans to sell with informed and experienced professionals. They need factual information about exit planning and sale or transfer processes.
They need expert guidance about whether their company is poised to command top dollar and information about market conditions for sales in their industries. And finally, owners need help sorting through all the emotional issues surrounding the departure from their companies.
Experienced transaction advisors (attorneys, business brokers, or investment bankers) provide the input owners need on a confidential basis. Nothing that an owner discusses with the transaction advisor leaves the room without that owner’s express consent.
Information leaks seldom originate with your advisory team. They know the importance of confidentiality. They understand that a breach of confidentiality on their part will affect not just your business, but their reputations in the community.
The confidentiality problem then does not lie with your advisors. Then, how does an owner maintain confidentiality once the information-gathering process ends and the sale process begins?
If you decide to use a transaction intermediary (Business Broker or Investment Banker), that intermediary will contact interested buyers and disseminate information about your company to known and unknown parties. To safeguard your confidentiality, screen the potential buyer list, removing competitors or companies with whom you do business.
Be careful not to mention your company by name in your initial marketing efforts to potential buyers. Finally, require interested, qualified buyers (of your un-named company) to sign strong and binding confidentiality agreements before learning the identity of your business or any confidential information.
The Strength of Confidentiality Agreements
Like any other contract, a confidentiality agreement is not bulletproof. To make it as strong as possible, it:
1) should be written by your transaction attorney (not the buyer’s)
2) must precede any disclosure of information.
Good investment bankers or brokers do not send out blanket mailings. They carefully identify and pre-screen targets before making a first contact.
All of these safeguards are in place to protect you, the owner, from the consequences mentioned above: nervous customers, jumpy employees, and opportunistic competitors. All the scrupulously maintained barriers in the world, however, cannot shield an owner from the most dangerous threat to confidentiality—the owner’s own mouth. In the few cases when confidentiality is breached, the leak generally originates with the owner. He or she just couldn’t maintain silence until the deal closed.
Let that be a warning to the loose-lipped. But let it also reassure the vast majority of owners: if you can control your own conversations, you can control the confidentiality of the entire sale process.
Need more info?
Watch for more future posts for more information about various aspects of the planning process. Expect hints to help save taxes, money, and time.
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Give us a call at (562) 281-1040 to discuss your needs for tax and exit planning, both now and in the near future.
