Confidentiality – Good for the Seller & Buyer

May 4, 2021

Best practice in the sale of a privately held company or family business is to facilitate the transaction in an environment of strict confidence.  The reasons why a seller does not want a potential sale of a business to be in the public domain are straight forward, knowledge a company is for sale can result in the loss of employees, customers, and/or diminished relationships with suppliers of products and services.  The same is likely true for a business buyer, as they want no action taken that would potentially have a negative impact on revenues, profitability, staff, or company relationships for a business they have targeted for acquisition.

One of the primary reasons to engage a professional intermediary to facilitate the sale of a business is to retain a knowledgeable, experienced, highly skilled party to manage the confidential disclosure process.  Selling a business is one of the most difficult products to sell in the marketplace because of confidentiality.  On one level, as with all products, a salesperson wants to create a robust marketplace where all potential buyers are exposed to a purchase opportunity.  A robust marketplace creates competition for a product and frequently an enhanced market value.  A quality business broker has the ability to create this marketplace.  On the other hand, as articulated previously, in the sale of a company a business owner wants no one to know that a company is on the market.  A quality business broker also has the ability to create this environment through employing relevant knowledge, experience, systems, and processes.  The following is an overview of some of the elements commonly employed by the “best of the best” business brokerage firms in the United States to maintain a confidential environment in the sale of a business:

  1. Legal Documentation – The construction of a confidential environment for the sale of a business starts with proper legal documentation.   Non-Disclosure Agreements (NDA’s) should be drafted with reference to state law, the legal authority for confidentiality agreements and the jurisdiction where enforcement litigation is likely to occur.  In addition, they should be concise, understandable by a layperson, and confirmed by the buyer on multiple occasions in terms of the parameters for sharing and distribution of confidential information.
  2. Buyer Screening – An executed NDA is the foundation for creating an environment for sharing confidential information, however standing alone this one pillar does not establish a strong gate regulating buyer entrance into a venue where company secrets not found in the public domain are provided. The second pillar in a well-constructed environment of strict confidence is a screening process for potential buyers.  This process includes establishing if the party has sufficient capital and experience to run the company.  If a potential buyer does not have a pathway financially to buy a company, then what is the benefit for a seller for them learning about the opportunity.  Equally, if they do not have the ability to run the business and replace ownership then is it prudent to sell to them and put customers, employees, and vendors at risk moving forward.  Most business brokerage clients want to achieve the maximum possible sale price, but also want to see successful business continuity through a transfer of ownership and far into the future.  A business broker unwilling to act as gatekeeper of knowledge and inspect the credentials of potential buyers is likely underserving their clients.
  3. Dissemination of Information – A properly facilitated sale process should see information disseminated incrementally. Different information creates different levels of risk exposure for the seller and their business.  Financial information, needed by all buyers to value and assess a business, can generally be shared early in the process as the information has limited ability to damage a company, if it reaches the public domain.  However, information such as payrates for employees and purchase revenue by the top ten customers of the business for the last three years can be very detrimental, if the information falls into the wrong hands.
  4. Knowledge & Experience – As with hiring any professional, there is no replacement for knowledge & experience. A seasoned salesperson can size up, control, and close buyer prospects consistently and effectively.  It is strongly recommended with the sophisticated, nuanced sales process associated with selling a business that an entrepreneur select a firm with an established track record of success and numerous testimonials verifying  that performance in the public domain.

Many businesses are sold to strategic buyers at premium values. These are parties desiring to increase market share or competitive advantages through acquisition.  They are also commonly the parties that are the most “nosey” seeking information, perhaps as a step toward buying a business, but also potentially just for strategic recognizance.  A business broker has the ability to professionally vet these parties hoping for the best, but anticipating all risk scenarios.  This is something that is difficult to do personally as a business owner because a name, telephone number, or email has a potential to identify a company for sale to a buyer and once that is out without proper systems and processes in place the proverbially “cat is out of the bag” and can run through the business community like wildfire announcing intentions prematurely.

IBA has successfully sold over 4200 businesses since 1975 in the Pacific Northwest employing time tested systems and processes to create an environment of strict confidence for the sale of a privately held company or family business.  If you would like to learn about how we consistently sell companies in dynamic marketplace environments for premium values while keeping the sale confidential in the public domain often for weeks to months after the transaction is completed, we would welcome the opportunity to have that conversation and provide an overview of our services.

IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, mergers & acquisitions, accounting, legal, wealth advisory, and real estate communities on subjects relevant to the purchase & sale of privately held companies and family businesses.  IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.