Managing confidentiality in a sale process

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Many business owners worry about exploring a sale of their business because of the confidentiality risks involved. And they feel this for good reason – confidentiality leaks for any business can be highly damaging to clients relationships and employee stability.

There are a number of measures that can be taken to mitigate confidentiality risk while exploring a potential sale. Here are some of the most effective measures.

1. Avoid approaching irrelevant buyers

Good examples of irrelevant buyers are those who have insufficient money to acquire (which should be picked up through a balance sheet review and other background research), those preferring organic growth strategies or those pursuing an acquisition strategy which means they would not be interested in a particular business for sale on account of its sector, size or geographic footprint. Avoiding irrelevant buyers is critical as they can often be the least confidential of all if privy to a sale process.

2. Avoid approaching close competitors as potential buyers

Not approaching close competitors as potential buyers is another effective means of protecting confidentiality. However, it is surprising how so many close competitors are approached, and early on too in sale processes too when they can do most damage by telling employees and mutual clients about the sale process in order to destabilise the business.

3. Never overlook the confidentiality letter

Although confidentiality letters are often weak legal commitments (and therefore are at times overlooked) they should still be put in place as a statement of intent. It is also useful if confidentiality letters include employee anti-poaching terms (many standard letters do not include such protections).

4. Discuss confidentiality with buyers’ senior people

We find that discussing concerns and expectations over confidentiality directly with the very senior people amongst buyer teams is one of the best ways to protect confidentiality. Their personal undertakings will often bind them and their teams to confidentiality far better than a confidentiality letter ever could.

5. Anonymise information

Commercially sensitive information can also be derisked by being anonymised. For example, ‘sales by client’ analysis, which buyers will quite reasonably use to get comfortable on a target’s client concentration risk, should have customer names anonymised. In doing so, vendor risk is reduced while the buyer can complete this part of its due diligence. The names can be released at a later stage of the sale process.

6. Stagger information release

Information about a business for sale should be staggered and gradually released in response to buyers’ continuing interest and to the time and money spent by them on assessing the deal. The most commercially sensitive information about a business (for example, customer names linked to margins and terms) should only be released in the final stages of due diligence when a deal is highly likely to complete.

7. Maintain deal momentum

Even when every measure taken to minimise confidentiality risk, the bottom line is that some risk remains as long as a sale process is live and in progress. Taking months or years longer than necessary in exploring and completing a sale greatly increases overall confidentiality risk. Accessing the relevant buyers efficiently and discreetly, and project managing their interest to a tight timetable is an essential way of minimising confidentiality risk.

Published in the Recruiter, 16 September 2011

 

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