Keeping it Confidential

Some businesses, such as historic landmarks or famous establishments, can actually benefit from publicly announcing they’re for sale.
For most businesses, however, maintaining confidentiality can be critical to the success of the transaction as well as ongoing business operations. The leak of proprietary and non-public information can be devastating. It’s not simply about protecting trade secrets or data on profit margins; the mere rumor that a business is on the block can have vast repercussions. Creditors, customers, employees and suppliers all get uneasy at word of a sale. It is also emboldens competitors to poach talent as well as clients. Confidentiality is not strictly about maintaining secrecy. It signals that a sale is sophisticated and professional, where the process is controlled, the outcome more assured.

Start Smart

For business owners, working with an experienced intermediary, such as an investment banker or M&A advisor will minimize the risks at the outset. Embracing advice and process rather than seeking shortcuts or fast-track outcomes can help ensure a sale runs properly from start to close, and advisors can help anticipate issues that may arise along the way. A deliberate process begins with a so-called teaser, a one-page summary of the business that is substantive enough to attract serious buyers but opaque enough to safeguard its anonymity.

NDA: Letters to Live By
No matter how decorous it seems, there is no implicit secrecy in deal negotiation. It must be formalized. Without a confidentiality agreement, or a non-disclosure agreement (NDA), disclosures made as part of the sales process are free for use. Ultimately, paperwork cannot itself prevent a breach, but at the very least it establishes accountability and forces all parties to take discretion seriously.
As a general rule, suitors should be screened in advance to streamline the sale, maximize resources and minimize the chance of an inadvertent leak. Once credible potential buyers emerge, out comes the NDA. The contract not only ensures that sensitive information disclosed by the seller – whether related to financials, intellectual property, workforce, customers and suppliers – will be kept secret, but also keeps the sale itself under wraps. That is perhaps the most important provision. It’s not a fail-safe precaution, but going without is naive or reckless – “This conversation never happened,” is not a winning strategy.

Keep It Privileged
Like most aspects of a deal, the NDA often involves some back-and-forth with a prospective buyer. Nobody wants to expose themselves to liability, assume onerous constraints or divulge more than is necessary. That being said, the contract should not be a major source of contention, more a deliberate procedural step.

Sellers often hold the pen on the NDA because they tend to be the ones laid bare, but it is not always a one-way street. Investors may well want to protect information they pass to a target and push for a mutual NDA, where both parties are restricted from disclosing particulars.

Even with the confidentiality agreements inked, it is best not to reveal everything at once. Instead, stagger the disclosures as needed, withholding the more sensitive information until later in the process.The best approach is to make disclosures in a balanced and gradual way that will build towards a sale. For instance, hold back on the most significant disclosures until certain milestones, like a letter of intent or an offer is in play.

The NDA’s chief role is to establish confidentiality for a specific duration. However, an effective contract does more to establish the groundwork for a deal. Ultimately, an NDA can foster trust rather than merely outline liabilities, setting the right tone for a successful deal.


Virtual Lockdown
The most effective way to maintain confidentiality is to control the flow of information. As a practical matter, limiting the dissemination of sensitive documents can be the best prophylactic. In this day and age, documents can proliferate and fly away at a keystroke.
It is standard practice for law firms, investment banks and M&A advisors to host sensitive information in virtual data rooms (VDRs). These online deposit boxes defend against hackers as well as human error by granting limited access to select individuals who can view but not copy documents. A secure dataroom also enables you to closely monitor each click, every turn of the page.
M&A deals are fast-moving and founded on trust, but that does not mean that certain measures should not be taken to ensure that closely guarded information stays secret. In fact, confidentiality need not encumber the process or breed suspicion. If anything, a mindful and straightforward approach will not only protect disclosures but ultimately facilitate a deal, bringing a heightened focus and calculation to the proceedings.

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