Keeping Your Business Sale Confidential – Success Depends On It!

By Generational Equity

11/28/2016

Keeping Your Business Sale Confidential – Success Depends On It!

One of the most essential challenges you will face as you consider the exit from your business is maintaining confidentiality during the process. Simply put, customers, suppliers and most importantly employees tend to get apprehensive as the rumors of a merger become public. How you handle the news of your business sale will depend on a variety of factors; however, most importantly you have to gauge how the eventual release of the information will impact all your key constituencies.

It is fascinating to me as I meet with our clients post-sale that the handling of the confidentiality of their transactions varies from literally involving key employees from the outset to not informing them until the day the buyer walks in the door after the deal closes. What this tells me is this: Each transition scenario is unique; the way you handle yours will be dependent on how comfortable you are with employees, customers, and suppliers finding out.

In some industries, competition is so intense that informing even key employees (or even spouses for that matter) can be problematic. In other situations, business owners are quite comfortable involving the entire staff from the outset, believing that the more informed folks are, the better they will handle the “fear” of the post-transaction operations.

So the decision of who to involve and inform and who not to is something that you need to carefully consider. If you hire an M&A consulting firm, your dealmaker will give you suggestions based on his/her experience about how you should proceed. If you are entering the market on your own, this is something that you need to talk to your trusted advisors about. Under either scenario, here are some basic guidelines to keep in mind:

• Ensure that you have a well-crafted Confidentiality Agreement (CA) to have interested parties sign before disclosing information about your business.
• Be careful to make certain your Business Profile (the 1 to 2-page “teaser” sent to prospective buyers) is generic enough to shield your business, but contains enough details to entice interest.
• Only send your Offering Memorandum to buyers who have signed your CA.
• Determine which employees will be working with you during the data gathering process.
• Decide how you want to handle potential buyer visits to your facility (i.e., after hours, on weekends, or create a cover story).
• Make sure you are comfortable with potential buyers being allowed to contact key customers during due diligence.
• Discuss with your buyer how and when you want to announce the transaction to your employees, the industry, and your community.

This is just a short list of some of the issues revolving around confidentiality that you need to consider if you are exiting your business. There are certainly others that come into play, depending on the level of secrecy you need in your business in order to maintain your post-sale operations and the company’s longer-term continuity.

Determine What Works Best for You

Again, we have clients that disclose from the outset to their key employees that they have engaged us to help them find investors. This is usually the case when the owner is determined to stay and operate the company as a partial owner post-sale. In this scenario, it is likely that involving the employees is a great idea, as it enables them to understand that the owner is not departing, but is in fact reinvesting in the business to help it grow.

On the other hand, we also have engagements where the owner does not indicate to any employees what is going to transpire until the day the deal closes. In some cases under this scenario, the transaction is announced to the team the same day that the new owner is introduced. Although this can be quite a shock to the staff, under some scenarios this is the only way to ensure that key employees and customers do not depart during the sale process. Although under this type of process, it is often a good idea to have the buyer create employment contracts with your key folks to ensure that they are committed to staying when the deal is announced.

You can see that the issue of how you handle the confidentiality of your transaction is something that needs to be planned well in advance. Spend some time discussing your situation with your M&A advisor, or if you are looking for buyers without professional help, create a circle of trusted folks that you can have frank discussions with about how you should manage your process as it relates to confidentiality.

The success we have had over the years is driven, in large part, by the ability of our dealmakers to listen to our clients’ needs, determine what is important to them, and craft an M&A process that works for every situation.

If you would like to learn how we can do that for you, call me at 972-232-1125 or email me at cdoerksen@generational.com and I would be glad to discuss your situation and determine how best we could help your exit planning process move forward.

By Carl Doerksen, Director of Corporate Development at Generational Equity.

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