Managing Confidentiality when Selling a Company

Confidentiality is of upmost importance when selling a company.  It can be very damaging if it is widely known and can ruin a good deal at best or can lead to failure to close the deal at all.   However, it is not possible to keep the selling of a company confidential from everyone.

This article will look at the reason confidentiality is important, who to confide in and how to keep that confidentiality.

Why is Confidentiality important?

There are several reasons why confidentiality is important:

  • If employees in the company know that it is up for sale, they may start losing heart in their job as they feel less secure. Some may start looking for jobs elsewhere and there is a danger that key people will leave the company.  This, along with a disgruntled workforce can severely affect the running of the company and in turn its value.
  • Once there is a rumour in the market that a business is up for sale it can very easily affect the value of its shares. It causes uncertainty and with shares down a good price is a lot harder to make.
  • The customers will be uncertain whether they can rely on the company to continue to produce the same products and services. Suppliers, also, don’t know if the new owners will continue with the same requirements.  This can all cause disruption in business.
  • A company known to be on the market for a long time can be at a disadvantage as there is suspicion that it is not a good business to buy.

How to Manage Confidentiality

It is impossible to keep things confidential from everyone, if you are to sell your company.  So how should confidentiality be handled with business brokers, buyers and employees?

With M&A Advisors & Business Brokers:

The first thing that should be discussed with a business broker or any M&A advisor that is helping in the sale of a company is the confidentiality.  Even when it is only a vague idea, it is important to keep rumours at bay.  A non-disclosure (NDA) should be signed from the outset.  This should stipulate, not only confidentiality about a sale, but also regarding any information the broker finds out about during any part of the process.

With Company Employees

Once there are buyers interested in buying a company, there will be key people that need to know that the process is going on.  If they don’t hear it directly, they will start to wonder about what is happening as various administration jobs are carried out for due diligence.  In this case the best line of action is to take these people into confidence.  When this trust is given then there is less likelihood of suspicions being passed on to those around.

To make sure key workers are really on board a share in the transaction value can be promised to them on completion of the sale.  This will not only keep them from leaving, but also ensure that they will work to their best in order to keep the value of the company high.  And it will be an incentive to keep confidentiality.

With Buyers

Initially the company can be promoted without its name being used, but once a potential buyer is seriously interested, there comes a point where they will need to know who the company is.  Due diligence will also need to be carried out, which reveals the inner working of a company.  At this stage an NDA agreement needs to be signed by the buyer.

Virtual Data Room

At the most crucial stage of a deal, when documentation is being transferred, a virtual space is created for this to take place.  This is known as a Virtual Data Room (VDR).  It is essential that reliable software is used for this to work and that information is protected from any leakage. It is also essential that this is done once there is a trust built up between buyer and seller and it will be very close to the close of the transaction.

Finally….

It is difficult to maintain confidentiality if you are trying to sell your company yourself.  M&A advisors are experienced in keeping confidentiality, so you can be at ease in exploring the possibilities of selling your company.

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