Confidentiality Means Less M&A Stress

After making the decision to sell your company, you may want to talk to everyone about the decision but that would be a mistake. While you should be talking to your board of directors, shareholders, and any other pertinent members of your management team, you shouldn’t be telling everyone and their cousin that you’re looking to sell the company. The only outside people that you should discuss this with are your trusted advisors. That might include your corporate attorney and your tax advisors. You are also going to need professional help from other outside advisors that specialize in M&A.

 

Keeping this confidential isn’t just about keeping your employee morale high (although that can be a serious problem if your employees find out too soon), it is about ensuring that your day-to-day operations can still run smoothly. Even if your past financials look great, a buyer is going to be worried if you’re experiencing a huge dip in sales right before they try to acquire you caused by the word getting out that you are looking to sell.

 

That kind of slow down can make it harder to go out to market and find a buyer that is interested in you, so keeping everything quiet is the way you should go. Even if you think you can trust someone in your company with the information, it’s likely that they will accidentally tell their friends about the situation since it will have a huge impact on their livelihood, not just yours.

 

The largest downside to the news getting out before you want it to is that your competitors find out. They may turn around and use this information to try to steal customers or simply start sowing the seeds of fear, uncertainty, and doubt about the financial stability of your company and creating chaos that might be difficult to control.

 

Of course, there are some people that need to be told about your decision to sell. These will include your CTO, CFO, and your head of sales. The people that serve in these roles in your company may have different titles than this, but regardless of their titles, these are the people that you need to keep in the know.

 

The biggest challenge in this group will be the head of sales. Once the head of sales learns that the company is being sold, their attitude could change and have a negative impact on the continued function of your company. Without certainty that they will have a place to land after the sale of the company, they may be harder to manage. It will be important that you think through the best way to manage this situation before you tell them. For example, if they have no equity in the company you may have to tell them that you will look after them with a retention bonus after the sale is made.

 

Outside of your company, the other main source of information leak can actually be the buyer candidates that you’re talking to about a sale. Any buyer that’s interested in learning about what your company must sign a non-disclosure agreement. On top of having them sign the NDA, you’re going to need to mark all of the documentation you share with them as confidential. To be even more careful, you may also want to make sure that everyone is aware of the serious consequences for those that break the NDA and leak information, any information at all.

 

When you’re in the process of talking to these potential buyers, you’ll need to manage the timing of the release of certain types of information. You will have to share summary financials of course and they also may want headcount and organizational structure information. If you are a software company with valuable intellectual property that is your “secret sauce,” the source code for this IP should not be shared until a Letter of Intent has been signed and you are in the due diligence phase of the buying cycle. Under no circumstance should detailed IP be shared until there is an offer on the table via an LOI that has been signed by both parties.

 

A well-qualified buyer will know that you are not going to share your secret sauce with them until they put a deal on the table. During the process of buyer discussions the focus should be on what your software does and the value it delivers. There should be no need to know how it does it. Talking about what your technology and software is capable of is going to be much safer than sharing the base code that you use to make everything run.

 

The M&A process is about toeing the line of what to tell, who tell, and when to tell it. This line is tough to navigate, even when you have everything in line because the potentially devastating effects that it can have on your company that you took so much energy and time to turn into what it is now. Getting the most out of your M&A process means not having to spend tons of time focusing on what can go wrong. By making sure that no one is going to talk about the deal before it is time, you’re already getting rid of so many of those worries. So when you’re looking at M&A, make sure you’re taking care to not tell everyone you know about the deal.

 

Selling your company is both exciting and terrifying. Potential buyers are going to look under every rock. What they see and when they see it you can control. Total confidentiality is the mainstay of any successful M&A process. Get experienced M&A advisors on your team from the get-go. You will sleep better at night and you will get a better deal via a well-managed, disciplined process.

 

Posted by , Senior Vice President on 9 October 2018
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