EDGEMONT CAPITAL BLOG

The Importance of Confidentiality During the Sale Process

confidential business saleThe process of selling a business demands professionalism and professionalism demands confidentiality. Neither party should want outsiders to know about a potential sale before it is finalized. Early details may even jeopardize the business in question by alienating customers and alerting the competition. Exceptional M&A Advisors understand the key role confidentiality plays in a successful sale. But all too often, unskilled or inexperienced business brokers breach confidentiality, sinking a deal before it can even happen.

The Perils of Confidentiality Failure

Failing to maintain confidentiality can trigger a host of negative outcomes. Suppliers and vendors may want to end their relationship with your business, or change to more unfavorable terms. Lenders may be hesitant to extend new lines of credit, negatively affecting your access to cash. Even your marketing efforts may ring hollow, since promises of excellent products and quality service hold less weight when would-be customers know that a sale is pending—particularly if the sale is due to less than ideal financials.

Confidentiality breaches may also hinder employee morale. Employees may begin seeking new jobs, fearful about the negative outcomes of a sale or concerned that the sale means the business is in trouble. Customers may decide to transfer to a competitor, particularly if the sale causes them to perceive a downgrade in the quality of your services or products. If employees jump ship, the effect on customers could be disastrous.

Confidentiality breaches may also harm would-be buyers. By undermining your business’s reputation or leaking key information about your buyers, confidentiality breaches put everyone at risk.

Competition and Confidentiality

If the competition catches wind of your plans to sell, they can capitalize on the situation. They may steal your customers, attempt to scare potential buyers, or lower their own prices to benefit from a volatile marketplace.

That makes your business less competitive, and therefore less appealing to potential buyers. To buyers who have their own competition to worry about, a breach in confidentiality can make the entire deal simply not worth the hassle. Even a threatened breach can lower your business’s value in a competitive marketplace.

Some competitors are downright devious. They may pose as would-be buyers allowing them to unveil the identity of businesses that are planning on selling. In so doing, they can gain significant access to competitive information, adjust their prices based on the information they find, or even take proactive steps to undermine your business’s value or prevent it from selling. In a cutthroat marketplace, it makes good sense to find out as much as you can about the competition.

The Right M&A Advisor: A Confidentiality Ally

You can increase the odds of a successful sale by avoiding leaks at all stages. The best way to do this is to partner with a skilled, discreet, and experienced advisor. An M&A advisor doesn’t broadcast your pending sale to everyone, including the competition. Instead, they keep information close to the vest, preventing problems with vendors, employees, and other parties.

This process is both art and science, requiring extensive experience and intensive skill. By working with an advisor, you remove many of the challenges of selling on your own. Sellers who go at it alone are more likely to accidentally reveal too much information. An M&A advisor knows exactly how to avoid this potentially disastrous outcome.

A seasoned advisor shields your identity and reputation. He or she also takes proactive steps to protect the buyer’s confidentiality—and thwart fake “buyers” —by requiring buyers to pre-qualify for the purchase and sign confidentiality agreements.

By revealing only that which is necessary, you present your business in a favorable light and give accurate information about your operations. But you also shield your customers and employees from the competition, and reduce the likelihood that a sale will fall through because of inadequate attempts to maintain confidentiality.