In the summer of 2014, French asset manager Vincent Le Stradic boarded the train from London to Paris. Deciding to work on the train, Le Stradic laid bare the details of a $15 billion deal in which the mobile provider Iliad would be taking over T-Mobile.
Unbeknownst to Le Stradic, a competitor from another investment banking firm was quietly watching him work. In the next seat over, Alexandre Zaluski was sending the visible information to his colleagues at UBS with the intention to pitch a deal of their own to the client and take the deal from Le Stradic. The details emerged in 2019 under the litigation of a much larger investigation.
This story has become a warning about the potential consequences of leaked business sales. In this article, you’ll learn more about ways to protect sale confidentiality, such as non-disclosure agreements, to prevent harmful intentional or unintentional disclosures.
Jane received a call from one of her biggest customers. The customer had been in the process of putting together a large order that Jane thought would be her most important piece of business for the year. When the customer advised that they were not going to proceed with the order, Jane was stunned. When pressed to explain, her valued customer indicated they had learned Jane was selling the business and that they had been told of the potential buyer. The customer did not want to do business with that company, and to avoid any issues, the customer felt it was best to decline ordering the equipment.
Jane learned a very harsh lesson: stakeholders who are aware of, and are impacted by, the potential sale of a business, can negatively affect the sale and create havoc for the owner attempting to sell it for the highest possible value. In Jane’s particular case, she had shared her intention to sell with her key managers, believing it was a good idea that the managers knew what was happening in the company. Jane asked the managers to keep it confidential and thought they would honor her request.
“How do I keep it quiet?” is one of the most important questions asked by an owner who is contemplating putting their business up for sale.
Individuals who do not understand the business sale process, or those who mistakenly think they are helping you by telling potential buyers, are most likely to breach sale confidentiality.
The most frequent sources for leaks are family and friends. Business matters are routinely discussed in family get-togethers or with friends who are confidantes. Family members and friends are often unaware of the negative repercussions of disclosing the intent to sell.
The use of Twitter and other social media apps makes it even easier to inadvertently slip that the owner is selling the business. If the owner is intent on family and friends knowing about an intended sale, then family and friends must be made aware of the consequences of letting others know.
Lawyers, accountants and professional advisors are not likely to tip their hand unless they have asked permission to do so ahead of time. Maintaining sale confidentiality is a key success factor for their professional success, and they are practiced in advising in confidence.
There are only two ways that your intention to sell your business can become known to anyone else: you and your transaction advisor. Both consider sale confidentiality mission critical to the success of a transaction. Both are aware that public knowledge can create uncertainty and decrease the business value.
A transaction advisor without a proven process for controlling information is of no value to the owner. The transaction advisor is your key to successfully communicating your intentions to sell to only those who qualify as potential buyers for your business.
Your transaction advisor will introduce you to their process for maintaining confidentiality. Each situation is unique and must be adapted to your particular circumstances. An owner does not need to accept the confidentiality process without demanding changes that minimize the chance of unintended disclosure.
Your transaction advisor will have interaction with your other professional advisors. While not a source of concern for breaching sale confidentiality, care must still be taken to ensure there is no unintended disclosure or talk that goes public. You, as owner, should have prior knowledge of these discussions if not in attendance.
This is the basis for all decisions an owner must make regarding access allowance to business sale information and transaction documents.
There are two sources of leaks: internal and external. Employees working closely with the owner can often sense something is going on. A new advisor, a “blue suit,” is an alert that needs to be addressed.
When acting as an advisor to business owners, advisors seek to find ways to continue to grow the business. Even when an owner is selling, growing the business remains a priority. Typically, an advisor asks to be introduced to staff as an advisor helping to identify and implement steps to help grow the business. Any issues related to growing the business are relevant in creating the strategy and documentation for selling the business.
There are steps that can be taken to minimize the form of interaction with your advisors. You can:
To the extent necessary, certain employees can be asked to sign a confidentiality or non-disclosure agreement that requires them to keep any knowledge of a potential sale to themselves. This should be a low-key process intended simply to reinforce the importance of discretion.
There are three important documents in the transaction process that provide opportunities to maintain business sale confidentiality.
Information sheet (Teaser)
Non-disclosure agreement (NDA)
Confidential Information Memorandum (CIM)
The risk of disclosing vital information to a buyer is highest subsequent to the receipt and signing of a Letter of Intent. The due diligence phase is when the potential buyer seeks to confirm that the business is in the same state as outlined in the CIM. The potential buyer will review the target’s financial records in detail and will likely wish to visit the business premises, talk to certain staff and speak with customers and suppliers.
Your transaction advisor should have access to, and a process for, providing a digital vault (i.e. electronic data room) for storage and access to documentation required in the due diligence process. This vault is well secured with password access limited to approved parties.
Compartmentalized security clearances are available for different types of information:
These ensure only those granted approval to the information have access to it. Further limitations can be placed on view-only settings versus the ability to download the information. Each entry into the vault is logged, and communication regarding the entry is passed on to the owner and transaction advisor. Password access for any authorized user can be removed by owner request.
The vault greatly reduces the need to visit the owner’s premises to acquire information. The transaction advisor requests the information early in the transaction process to ensure the information will be available when it is needed. All of this may sound fairly complicated, but there are a number of companies that provide electronic data rooms at competitive prices.
An owner has many things to consider when addressing the need for sale confidentiality. The best source of information is a transaction advisor. The transaction advisor has dealt with this concern continually in transaction engagements and has had success in ensuring even the most public of companies are sold without prior public knowledge. The process utilized by the transaction advisor will provide peace of mind to the owner if clearly understood and practiced.
[Editor’s Note: Proper due diligence and disclosure agreements can make or break a business sale. One sweet success comes in the form of Kellogg’s recent sale of the Keebler brand to Ferrero Group. To learn more about successful transitions and the steps your business can take to ensure confidentiality, watch the webinar: The M&A Process: Understanding the Lifecycle of a Deal & Basic Deal Documents.
If you want to read more about how to sell or otherwise exit a business, be sure to read Business Transition and Exit Planning: Welcome to the Jungle! It will lead you step-by-step through what you need to know.
This is an updated version of an article published on April 4, 2015.]
Doug Hyland is a principal of ROCG, managing the Toronto, Canada office. He is a recognized expert in the area of transition planning for business owners and their families, a frequent speaker and contributor of articles outlining the unique challenges business owners experience readying themselves and their businesses for exiting on their terms. Doug assists…
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