Most entrepreneurs considering the sale of their company have a legitimate concern about keeping a potential sale confidential from employees, competitors, and customers, until the transition process can be appropriately managed. Owners would not want the employees to be concerned and leave for another job, they wouldn’t want their competitors to use the potential sale as leverage against them in a bidding process, and they don’t want customers to go elsewhere because of a potential change in ownership.
In most cases these concerns are well founded. The process starts with an appropriately drafted Confidentiality Agreement (“CA”). This is also an area where the use of an Intermediary firm can come into play, as it is difficult for the owner to retain confidentiality while interfacing directly with a buyer. At FBB, we operate on a “need-to-know” basis and start out with just enough information to get a buyer interested enough to sign a CA and to provide financial information and operational and financial capabilities, thus demonstrating the ability of that buyer to complete a transaction. This initial information is usually provided in the form of a one page Executive Summary, which identifies the business with a profile # rather than a name. The summary camouflages the identity of the business, while providing enough information to entice the buyer to go the next step.
Assuming that the buyer is deemed to be appropriate, the buyer then receives access to a fairly detailed Presentation Package on the business which identifies the business and ownership, and provides reasonably detailed financial, marketing, and operational information, without disclosing detailed customer or employee data. The purposes of the package is to:
- enable the potential buyer to determine if they want to further pursue the transaction, and
- enable the buyer to reasonably determine that the value appears appropriate. If the potential buyer is a competitor, the process becomes somewhat more complex , and it would not be unusual to get a more detailed and specific CA in place.
Assuming that the negotiations result in a fully executed Letter of Intent (“LOI”) or Asset Purchase Agreement (“APA”), the buyer would then be given access to more detailed information, usually via an electronic data room. Although the buyer would have access to this information, the buyer would be precluded from contacting employees, customers, and suppliers, at least until the financing was committed and the negotiations on the APA were finalized.
With the understanding that each situation is unique, confidentiality is an integral part of the business transfer process.
Ronald V. Chernak
Inspiring business relationships since 1982!
(Article previously published in May 2019 Newsletter)