The Hidden Risks of Revealing Your Company Name Too Early in an M&A Process

You're in the initial stage of selling your tech company. You want to reach out to as many quality prospective buyers as possible. You might think it would be natural to name your company in that outreach. However, there are many reasons to wait until you have a signed Non-Disclosure Agreement (NDA). Here are some of them.

Competitive risks

Naming your company during initial outreach to buyers may inadvertently expose it to competitors who then use the information for their own purposes to your detriment. For instance, they may try to damage your company's reputation by publicizing your intent to sell as a "fire sale" driven by problems. Think about what that characterization might do to the relationship with your suppliers and customers. Suppliers might want concessions to continue their relationship with you. They may even end it. Customers may reconsider doing business with you and turn to your competitors. The result might be a serious drop in your company's financial performance. 

Partnership risks

Consider what prematurely disclosing your company name might do to partnership arrangements you have with other companies. For instance, if you have an agreement with another company to co-market your product or service, or integrate it with theirs, that partner might want to reassess the agreement, at which point you have lost negotiating leverage. 

Contractual risks

If your company has a contractual agreement with a partner, supplier, or customer that restricts disclosure, you might be in violation of that agreement if you disclose your company name in an initial outreach to buyers. For instance, a Change-of-Control (CoC) clause in a contractual agreement often restricts your company from soliciting offers from buyers without first getting prior consent from the other party in the agreement. Revealing your company name prematurely can violate confidentiality provisions in that clause. If so, you risk terminating the contractual agreement.   

Stakeholder risks

Revealing your company name during initial outreach to buyers and thereby exposing it to risk can even impact your relationship with key stakeholders, such as investors. They may feel dismay, perhaps even feel blindsided, by your strategy. They will probably question your reasoning, as well as the reasoning of your M&A advisors, and may work to derail the process.

Employee risks

Think, too, about what that breach in confidentiality might do to your employees. They may fret about their future employment. They may anxiously wonder if they will continue to have jobs or if the nature of their jobs will drastically change after the sale. They might lose faith in your leadership and the company’s direction.  Employee fear, anxiety, and doubt can directly affect your company's productivity. You may even lose valuable talent.

Valuation risks

If the market gets the impression that you're selling out of desperation, it can significantly drop your market value. Remember, if you prematurely disclose your company name, some might take advantage    of that to portray your entry into the M&A market as driven by distress. In that case, prospective buyers will likely make lower offers ‒ offers with lower valuations and poorer structures. In fact, if the market perception of your company is damaged enough, you might not get offers. The best way to generate an optimal offer is to create competitive tension by having multiple buyers bid for your company. When you initially reach out to prospective buyers, you want them to focus on the benefits your company offers. You don't want to distract from that by naming your company. Keeping buyers focused on your benefits and value to them will help generate genuine interest in your company.

Avoid the risks

If you reveal your company's identity too soon, that is, before an NDA is signed, it opens up your company to multiple risks, including damaged reputation, loss of customers and suppliers, poorer partner relationships, contractual violations, and a drop in company valuation.  So be wise and keep your company name out of initial outreach to buyers. Wait to disclose your company name until you get a signed NDA from buyers.