Selling A Business - Concerning Confidentiality Article

Concerning Confidentiality

By Jack Lyons, Mergers and Acquisitions Specialist and Certified Exit Planning Advisor


In many cases, we find that business owners are very private about their business plans. So private, in fact, that sometimes they fail to keep their spouses informed on their thoughts about the future, including those regarding exiting their company, until the last moment. This lack of communication can present a serious problem if it prevents business owners from receiving all the information needed to make wise decisions about how and when to exit their companies. It certainly does not lead to the best possible decisions for the owners, their employees, their companies or their families.

I’ve often wondered why a business owner is unwilling to talk and listen to an experienced advisor and to take professional advice seriously enough to act on it. I’ve heard and seen this happen over and over with all kinds of advisors, including accountants, attorneys, estate planners and insurance agents. Business owners need expert advice about whether their company is ready for sale and how to prepare to sell for the highest possible price. I can’t tell you how many times I’ve spoken with owners who, if only they’d been willing to seriously consider such important advice earlier, could have sold their companies for much more money than they received.

Given this tendency for being very private, a business owner often is very concerned about confidentiality when contemplating selling his/her company. If an owner decides to engage a merger and acquisition (M&A) advisor for help, the advisor will probably contact many potential purchasers. This can be done safely by using documentation that masks the company’s identity and by avoiding potential buyers that the owner believes may not honor a confidentiality agreement or could present a competitive threat if they do not acquire the company.

Based on initial discussions and documentation, any potential buyer expressing interest in the company must sign a confidentiality agreement. As with any contract, there is no such thing as a bulletproof confidentiality agreement, another reason to avoid competitors or parties that might not honor one. However, presenting a potential buyer with a confidentiality agreement that is too restrictive (one that the owner himself/herself wouldn’t be willing to sign) will most likely terminate the buyer’s interest.

Depending on the nature of the company and the owner’s level of concern about confidentiality, many times the private offering memorandum (“deal book”) is prepared without revealing the company’s identity. However, if a buyer expresses interest in the company, the firm’s identity has to be revealed or the potential deal will die a quick death.

Owners are often concerned about what is contained in the private offering memorandum. As a rule, it shouldn’t reveal anything that could materially hurt the company or its future if the deal isn’t finalized. For instance, the names of employees or customers probably shouldn’t be included. That should be done much later in the due diligence process, once the potential buyer has proven that it is seriously interested in consummating the transaction.

You may be asking whether confidentiality agreements, anonymous documentation and avoidance of risky potential buyers work. My experience indicates that the answer is a resounding yes. Over my 25 years as an M&A advisor, I have seen very few buyers—maybe two or three—breach confidentiality. In fact, most breaches that I’ve seen were because the business owner had loose lips or wasn’t careful about his/her actions. In light of this, my take is that if precautions are taken to ensure confidentiality and the business owner keeps silent after deciding to sell, confidentiality can be maintained throughout the sales process.

Jack Lyons is a Mergers & Acquisitions Specialist and Certified Exit Planning Advisor (CEPA). He is president of Lyons Solutions, LLC. Jack can be reached at 203-642-4141 or at jlyons@lyonssolutions.com.