The United States government provided millions of “citizen-soldiers” who were drafted or volunteered to serve in the military during World War II with a pamphlet entitled “Loose Lips Might Sink Ships” to proactively address its concern that these individuals might inadvertently disclose information that could be detrimental to our troops or America achieving its objectives. The concept of holding information in confidence to help create a more favorable environment to achieve an objective is also employed in the sale of a business. The most common information to be held in confidence in a mergers & acquisitions environment is the basic fact that the business is for sale. It is not in the best interest of a business owner for it to become public knowledge that their business is for sale. This information can impact relationships with customers, suppliers, and employees. It can also be used to the detriment of the company by competitors. In a properly facilitated transaction, the information a business is for sale is only provided to parties with the appropriate resources & motivation to negotiate in “good faith” to complete a transaction. Location of these potential business buyers while maintaining confidentiality can be problematic based on the amount of information on the business for sale made available in the public domain. Business brokerage professionals often have direct access to these parties unavailable to the public through maintenance of buyer databases and participation in closed networks of companies & individuals looking for acquisition opportunities. It is strongly recommended that a business owner have a potential buyer execute a non disclosure agreement prior to releasing any specific information about their business. Non disclosure agreements are available from legal counsel, merger & acquisitions professionals, and online.
Once a potential buyer is identified the release of confidential information to the party should be staged. The release of information can occur during the marketing & sales stage to facilitate negotiations, after agreement on a letter of intent during due diligence, or after a purchase & sale agreement is executed to satisfy a contingency for sale. It is recommended that the release of proprietary information that could be used competitively against the business or that will result in more people becoming aware that the business is for sale be deferred from release as long as possible. It is recommended that any information that could substantively impact the decision process of the buyer (e.g., one customer accounts for 50% of revenue) be released early in the sale process to avoid the possibility of unnecessary expenditure on professional advisers.
One piece of information that is traditionally held in confidence by both parties to a transaction involving a privately held company is the sale price of the business. Real estate transactions are publicly reported, but not sales of tangible & intangible assets of privately held companies or sole proprietorships. Both parties are required to report the financial information about the transaction to the IRS. The parties have the option of providing information on the completed transaction to the local media. Advantages & disadvantages exist to announcing a transaction to the public. Parties are encouraged to reach agreement on a post transaction information disclosure strategy prior to taking action in the public domain.
IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media and the mergers & acquisitions community on confidentiality and any other subjects relevant to the purchase & sale of a business.