Handling confidential information during a sale process can be very tricky, especially if the bidders are competitors in the industry. There is always a delicate balance between not providing too much information, which a competitor could use against you, versus not providing enough information, and the buyers thinking there is too much risk.
Getting this balance wrong can result in a potential buyer withdrawing or not paying full value for the company. This article will guide you through a number of mechanisms that can be used to ensure confidentiality is maintained.
For tailored, expert advice on confidentiality and preparing a business for sale, talk to the team at Nash Advisory.
1. Sign a strong Confidentiality Agreement
Confidentiality Agreements (CA) can sometimes be seen in the industry as a 'toothless tiger', but this really depends on the obligations that are inherent in the document each party must adhere to upon signing.
A very strong CA, which not only compels the company, but also the employees and advisors of the company (on an individual level) to keep all information confidential is a good start. People tend to act more carefully when there is an individual (rather than company-wide) consequence if confidentiality is breached. The CA should cover elements including:
- Not speaking to employees of the target company
- Not discussing any elements of the transaction or target company to anyone outside of people that have signed the CA
- Not speaking to customers or suppliers
2. Redact key information
Another way to protect sensitive information from being used for gain by competitors is to redact certain elements of the information provided. This could be simply deleting the names of customers or products and putting in Customer 1, Customer 2, etc. or Product X, Product Y, and so on. For contracts, sensitive elements such as pricing lists or employee names can be blacked out.
This allows you to show your business performance and demonstrate the value of your business without giving away your intellectual property. Again, you need to strike the right balance between providing enough information and providing too much information. This is why receiving expert advice is critical to maintaining confidentiality.
3. Run a tight process using a good online data room
Running a tight M&A process where all information is maintained in an online data room is critical to ensuring confidentiality. The data room should have the ability to track the documents being viewed by who, when, and how many times.
High quality data rooms also allow view-only restrictions to be placed on documents, preventing documents from being downloaded or printed. These types of restrictions should be applied to key documents like contracts or lease agreements which could be commercially sensitive to the company.
4. Reputation matters
Reputation is everything in business. If a breach of confidentiality does occur, then word will spread quickly that the company cannot be trusted in a sale process. This will not only prevent that company from getting access to future M&A deals, but many in the finance community will not want to work with a company that does not adhere to strong ethical principles.
It may be difficult to trust other businesses to behave ethically during a business sale, but professional reputation can and should be a powerful incentive for most business owners.
5. Have a confident and well-connected advisor running the process
A well connected and strong advisor running the sale process is a good way to ensure confidentiality. Your advisor can guide you through the first 4 points in this list, ensuring you share the right information and redact the key details.
The guidance of an experienced, professional advisor will make the entire sales process run much more smoothly, as well as ensuring you maximise the sale value of your business.