Published on March 21, 2023
Selling a business can be a complex and time-consuming process, and one of the most important considerations for any business owner is maintaining confidentiality throughout the process. You might be thinking why? If I want to sell my house, I would just put a sign out-front and begin to advertise and tell the world. Post on Facebook, have an open house with a magician and get a person to flip a sign in the air to attract all the attention in the world. For a business, this is completely the opposite. There are several reasons why it is essential to keep the sale of a business confidential, and in this blog post, we will explore some of these reasons in detail.
Protecting the Business’s Reputation: One of the biggest reasons for maintaining confidentiality when selling a business is to protect its reputation. If the news of a potential sale were to leak, it could cause a panic, potentially causing a loss of customers, suppliers, or employees. Think about it, if you heard the company you were at was for sale would you be patiently waiting for things to happen or frantically typing us a new resume and sending it out? Say the company had customers who had contracts coming up. Would they want to wait knowing that when they renew there could be a significant change coming up, or would they look to go someplace else? With everyone possibly moving and seeing alternatives, this could negatively impact the value of the business, making it more difficult to sell and potentially causing financial losses for the business owner.
Maintaining Employee Morale: Another important reason for maintaining confidentiality is to maintain employee morale. If employees become aware of a potential sale, they may become concerned about their job security (as mentioned above), which could lead to decreased productivity (as time is spent worrying, gossipping, looking for a new job or other) and a negative impact on the business as a whole. Remember that in the sale of a business, the new owner will be expecting the business to still be fully operating and company projections to be hit during the due diligence period. This could be 60, 90 days or more and if things leading up to the close change for the worst, they are likely to want to de-risk their investment by making a new offer, a lower offer, or walking away completely.
Avoiding Unwanted Attention: Maintaining confidentiality when selling a business can also help to avoid unwanted attention from competitors, regulatory agencies, or the media. For example, maybe a past employee that hadn’t worked at the company for years, but saw a sale about to happen, talked to a lawyer, and they thought there was a way to get some quick money, so they went after the business owner. They make the accusation that they were falsely terminated or there were inappropriate activities done at work and threaten to file charges unless there was a form of immediate payment. Now this has to be disclosed and might destroy the transaction so they get a quick payout to make things go away.
Maintaining the Business’s Competitive Edge: If the news of a potential sale were to leak, it could cause competitors to become more aggressive in their attempts to gain market share, potentially causing significant financial losses for the business. They could pick at your clients and scare them with the uncertainty of your operations moving forward to maintain relations with you, resulting in their switching providers. Losing that revenue and contract at scale could be detrimental to the deal.
Protecting the Selling Price: Finally, maintaining confidentiality when selling a business can also help to protect the selling price. If the news of a potential sale were to leak, it could cause the business to become less valuable, potentially causing the business owner to receive a lower selling price. Yes, the opposite could be true, someone hears about the company up for sale that wouldn’t have otherwise heard it and makes an amazing offer, but that is the exception not the norm. Remember everything already discussed that might be happening when the public finds out.
If you are considering selling your business, it is important to work with a professional who can help you navigate the process and ensure that your business remains confidential throughout. An experienced Investment Banker can provide guidance and support, and can help you to develop a process that will keep the confidentiality of your business and protect your business interests.
*** The content is not intended to provide legal, financial or M&A advice. It is for information purposes only, and any links provided are for your convenience. Please seek the services of an M&A professional(s) before entering into any M&A transaction. ***
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Shawn Flynn is a Principal at Global Capital Markets, a premier middle-market investment bank with a global presence. Shawn has expertise in mergers and acquisitions, capital markets, financial restructuring, and secondaries. He speaks Mandarin and is the host of the award-winning Podcast The Silicon Valley Podcast. Connect with him on LinkedIn.
Shawn Flynn, Principal SF@GlobalCapitalMarkets.com
Tel (415) 578-1445 Ext. 4
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As a middle market investment banking boutique, Global Capital provides mergers and acquisition advisory services, access to corporate debt and equity capital, and strategic advisory services to successful middle market companies. For over twenty five years, our team has offered companies a unique blend of sophisticated financial expertise and access to the global marketplace of buyers, sellers and financiers.
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