One of the biggest concerns a business owner has about selling their business is keeping the sale confidential. They fear that if employees, customers, or vendors learned that the business was for sale, it would damage the business. This is a reasonable concern, but not one that should keep the owner from engaging an M&A advisor to sell the business. Confidentiality can be maintained and putting the business on the market should increase the selling price substantially as compared to a private sale to an industry buyer.
Confidentiality is maintained through a number of procedures. First, in the marketing of the business that is done to potential buyers before they sign a confidentiality agreement, the identity of the business is not revealed. Key attributes of the company, such as its location, are not revealed. The business owner reviews the marketing materials before they are used. Secondly, buyers are screened and must sign confidentiality agreements before they are given the identity of the business. The screening is for financial qualification, suitability to the particular business, and likelihood of making a competitive offer. We will also be more careful when dealing with industry buyers who may be competitors.
We prepare a Confidential Information Memorandum for qualified buyers. This has more information about the business that the buyer needs to prepare an offer. However, confidential information about the business is not included. The owner of the business reviews and approves this report before it is given to potential buyers.
Owners should be very careful about telling people about their interest in selling the business. No one without a “need to know” should be told. Although owners may not trust competitors, we frequently are dealing with them in the sale of a business and, in our experience, they have respected the confidentiality of the sale.