Our long experience in advising on M&A transactions has taught us that managing confidentiality is a key factor in any sale and purchase process.
As we have indicated in other articles, the success of a sale or acquisition is determined by the good management of each of the phases of the process itself.
There is a common denominator in all phases: confidentiality.
Confidentiality is essential, especially when you want to sell a business, but how do you prevent staff, customers, suppliers, competitors or third parties from knowing that there is an interest in selling or the status of the transaction?
If the market or the “wrong” people are aware that there is an interest in the sale, good management and ownership confidence in the project can be jeopardised. It is not surprising that, for this reason, many business owners are deeply concerned about how to manage confidentiality.
Our long experience in advising on M&A transactions has taught us that managing confidentiality is a key factor and we can generally say that it is a combination of strict techniques, procedures and an agreed communication strategy, tailored to each client.
For this reason, the figure of the advisor is key when looking for potential buyers, as the fact of using an intermediary avoids revealing the identity of the seller at an early stage. Likewise, in the preliminary phase, it is easier to sift through possible curious people or those interested in obtaining information about the seller’s details.
All of this means that advisors use various precautions from the very beginning of the process, including the following:
- The preparation of a “seller blind profile” to attract the interest of potential buyers.
- A selection of potential buyers who can really add value to the transaction.
- Requesting a confidentiality letter including safeguard clauses or penalties in case of non-compliance.
- Holding as many meetings with advisors as possible at their premises.
- The use of e-mails with restricted access to business property.
- Ensuring the integrity of digital and physical information moving through the internet, as well as the safekeeping of files by the advisor and the seller.
Confidentiality is about control. Therefore, everything we do on behalf of our client must be approved and signed by our client throughout the process.
In this regard, it is essential to agree with the vendor we represent on the following aspects:
- List of potential buyers, both those buying for a more industrial or strategic reason and purely financial (investment funds).
- The blind profile that we will present, also known as a “teaser”
- The non-disclosure agreement (NDA)
- The Confidential Information Memorandum (CIM), which is a comprehensive document that gathers the most relevant information of the company so that the potential selectees can review it and take a position on it.
The first contact with potential investors is made by means of a telephone call and an e-mail in which a general description of the company to be sold is included, known in the sector as a “teaser”.
At AddVANTE, this communication is always carried out directly with the general managers, owners or M&A managers of the potential buyers, and we never send the information to generic e-mails.
To preserve confidentiality, neither the caller nor the letter mentions the company being sold, nor any details that could identify it. To ensure confidentiality, we perform a semantic test via Google on the text used in the blind profile to ensure that the combination of words or phrases used is not easily detectable by internet search engines.
Only when the selected persons have signed a Non-Disclosure Agreement (NDA), we send the Confidential Information Memorandum (CIM). This will have been reviewed by and agreed with the property.
A common question asked by the vendor concerns how to ensure that the participants in the process will respect the NDA.
Firstly, it should be noted that it is a binding agreement tied to law and a specific jurisdiction that includes significant penalties for non-compliance.
Moreover, it should be noted that most buyers value confidentiality as much as sellers, as the seller will also require, through its advisors, confidential information from the buyer, and the buyer will want to maintain confidentiality from third parties in order not to disclose its strategy and avoid losing the competitive advantage of the potential deal.
As we can see, confidentiality is a critical and cross-cutting aspect throughout the entire sales process and must be guaranteed from the most preliminary and conception stages of the transaction. Poor management of confidentiality can lead to serious problems for the organisation, affect the final outcome of the process, and even lead to the cancellation of the transaction.