Well-managed, middle-market businesses are highly desirable M&A candidates for private equity and strategic investors today. If you believe the time is right to sell your business, be cautious about sharing your plans. It’s vitally important that business owners keep this decision close to the vest, preferably until a deal is finalized.
Only a select few should know that you want to sell a company
Prior to alerting any employees about the potential sale, business owners should seek the advice of a reputable, M&A advisor who can provide guidance regarding the entire process. An investment banker can explain the process to successfully market the business to investors and who needs to be pulled into the loop. With this advice in hand, CEOs/owners can then reveal their plans to select employees who need to know and agree to keep conversations pertaining to the selling process confidential. Those employees fall into two main categories: 1. Key executives who’s insight the business owner trusts and who can help weigh the options regarding different buyer scenarios. 2. Upper-level employees in accounting/finance, legal, operations and human resources roles who will coordinate the gathering of key data, contracts, agreements, leases, licenses, etc., that are required during the due diligence process.
Potential buyers need to sign confidentiality agreements
The fewer people who are in on the decision to sell a business, the better. The same holds true when it comes to key players on the potential buyers’ side. An experienced investment banker can ensure that any potential buyer has signed a confidentiality agreement prior to entering into discussions with the seller and his or her M&A firm. This agreement will advise potential buyers that all information pertaining to the seller’s business along with the seller’s intent to sell must be kept in the strictest of confidence. Your investment banker will also review this document with buyers verbally, to stress its importance. Learn more about confidentiality agreements here.
Leaks that a business is for sale can be costly
Middle-market business owners need to resist the urge to over-share their plans to sell with employees, contractors or vendors, and they should work with an M&A firm that places a high priority on confidentiality. Should the word get out that a business is for sale before any deal is finalized, the business owner could risk:
- Losing customers to competitors who are happy to cast doubt about the business’s ability to meet demand or infer that the future of the company is uncertain or in trouble.
- An employee panic and exodus that is fueled by fears that the company is in trouble and/or their jobs are on the line.
- A pending deal falling through due to rumors (true or untrue) circulating about the business’s future.
If the rumor mill heats up and employees or customers start asking questions, it’s best to neither confirm nor deny that the business is for sale. You shouldn’t lie, but you can be vague and say that the company is always exploring options that will take it to the next level.
Keep your ship afloat by biting your lip until the deal is done
There is no way to absolutely guarantee that your plans to sell the company won’t be leaked, but there are steps you can take to significantly reduce the odds. Sharing your plans on a “need to know basis” and being vigilant about confidentiality with employees and buyers can help protect your business. Once the deal is signed, sealed and delivered, you can share your intentions with the world. Photo Source: © Elenarts – Fotolia.com