M&A Transactions: Is Confidentiality a Myth?

All M&A transactions require the business owner(s) to reveal information that is highly confidential and crucial to the success of the business. This action goes against the normal course of action for the business. Revealing this type of information to the wrong party can be detrimental to business operations moving forward, particularly in tight knot business communities or industries with new major competitors.

To help ensure that a situation like this does not occur is to execute a formal Nondisclosure Agreement (NDA), which binds the party receiving the information to keeping all data confidential and not sharing the information with anyone outside of their operation. Even an executed NDA can leave your business exposed, not all buyers comply to all the covenants of the document. This is an unfortunate reality that business owners must deal with, after all no savvy experienced buyer will make the purchase without all of the needed confidential information.

Aspects of confidentiality sellers should be weary of when selling their businesses.
  • Nondisclosure agreements add a layer of protection but they are not full proof. The chance still exists that data will be shared outside of the parties bound by the agreement. The NDA is certainly enforceable, data shared with outside parties does indeed happen on occasion and there is unfortunately no way to undo it. At MCDA CCG we recommend that you only share your highly confidential data with buyers once they have submitted and indication of value for the business, showing a serious level of interest and commitment. This will also deter early stage buyers in further vetting your business.
  • Business auctions are a great and very successful way to market a business but they make confidentiality very difficult. The purpose of the auction process is to market the business to as many qualified buyers as possible, generating multiple offers allowing the owner to sell to the highest bidder. The real challenge in these situations is that the more parties involved the more data that is being shared. This is a situation that we highly recommend discussing with your M&A advisor. More seasoned qualified buyers would never risk violating an NDA simply because they purchase companies professionally and would not want to damage or tarnish their reputation. In the situation where the best and highest bidder is a strategic competitor, you should strongly consider a way to parse out limited data until you have relative certainty that they will be the ultimate buyer.
  • Do not share that the business is being marketed for sale with anyone that does not 100% absolutely need to know. The reality is that employees talk and rumors begin swirling quickly. It is best to not inform your employees that the business is for sale until after the transaction is complete. You do not want the knowledge of the sale process getting into the wrong hands of a competitor.
  • Operate with caution but don’t stress yourself out worrying about confidentiality. Hire a professional M&A advisor or investment banker to represent you and the sale of your business. They will ensure to the best of their abilities that confidentiality is maintained at the appropriate level. The reality is that when you deal with professionals confidentiality issues are rarely an issue, it is just something to be mindful of as you go through the process of selling your business.

Understanding your potential exposure and having a realistic expectation of what confidentiality really is in the context of a business sale will better prepare you for a successful business sale.

If you are starting, or in the process of selling your business, MCDA CCG can help make your transaction a success. Contact us today for a no-obligation discussion on your situation and how we can be of assistance. Call us at (714) 872-2393 or complete the form below and one of our M&A advisors will contact you immediately.

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