Confidentiality

When it comes time to sell your business one thing that you as a seller will have to do is divulge information that is highly confidential and imperative to the success of the business. Obviously, this type of information fallen into the wrong hands can be seriously detrimental to operations moving forward, particularly in the tightly knit business communities we serve (Pennsylvania, Connecticut etc.). The way to ensure that a situation like this does not occur is to execute a Nondisclosure Agreement (NDA), which binds the party receiving the information to keeping all data confidential and not sharing with anyone outside of his or her operation. Still, even an executed NDA leaves you somewhat exposed as not all buyers adhere to all the covenants of the document. Unfortunately, as they say, those are the breaks. Below are some of the aspects of confidentiality sellers should be weary of when selling their businesses.

1. While the NDA certainly adds a layer of protection under the law they are not full proof. There is still a chance that the data I shared outside of the parties under the agreement. While the NDA is certainly enforceable, data shared with outside parties happens and there is no way to undo it. For this reason, some business brokers and investment bankers only share highly confidential data with buyers once they have submitted an indication of value for the business. This shows a serious level of interest and a commitment to moving the process forward.
2. Auctions, while a strong and successful way to market a business, can make keeping confidentiality difficult. The idea behind the auction process is to market the business to as many qualified buyers as possible to generate multiple offers and hopefully sell to the highest bidder. The issue that can creep up in these instances is that the more parties involved means the more data that is shared. This is a situation that needs to be discussed with your investment banker or business broker. Most qualified buyers would never chance violating and NDA because they buy companies for a living and would not want to tarnish their reputations. However, if the best buyer is a strategic competitor to should consider a way to parse out limited data until you have relative certainty that they will be the eventual buyer.
3. Do not share that the business is being marketed for sale with anyone that does not absolutely need to know. Meaning, employees talk and rumors spread quickly. It is best not to let your employees know the business is for sale until after the transaction is complete. If knowledge of the sale process gets into the hands of a competitor bidding for the same business as you could be irreparably damaged.
4. Be cautious, but there is no need to worry yourself sick over the issue of confidentiality. The truth of the matter is that if you hire a reputable investment banker or business broker to represent you in the sale of your business they ensure to the best of their abilities that confidentiality is maintained. Confidentiality issues are rarely of importance when you are dealing with professionals, it is just something to keep in mind as you go through the process of selling your business.

Understanding your potential exposure and having a realistic expectation of what confidentiality really is in the context of a business sale will better prepare you for a successful business sale.

Similar articles can be read at: Business Markets Inc.