THE CONFIDENTIALITY RISK

(Part I of III)

In this article we'll cover

the identity of these spies who are monitoring your company and deducing this information;
how they know you're considering selling before you've shared that information with ANYONE;
why that is so dangerous and
what you can do to combat this "leak" and protect the confidentiality of your sale.

But first ....

Is It Necessary To Keep Your Strategic Plans Super Confidential?

A leak about the company being “on the market” can be extremely detrimental to the value of the business.

Not for the big boys - if rumours of a potential acquisition hits the wires, the shares of the participant companies are more likely to go up than down.

But it works differently for smaller, privately held firms. News that a business is for sale usually makes key people uneasy, especially customers, creditors, employees, suppliers and other partners. The potential consequences are:

Long-term and previously loyal customers move their business to a “more stable” company;
Creditors look at their contracts again and decide to tighten terms … or not renew them;
Suppliers get nervous about your line of credit and act to protect themselves;
Employees sniff around for other jobs and you could lose a whole team in a day(!) or less;
Competitors smell blood and approach your employees to scare them into moving;
Competitors could similarly scare customers away … or poach them etc.

You could also find you’re winning fewer of the contracts you’re bidding on, that customers are getting more cautious and throttling or deferring their spend; that employees are rushing to use up their annual leave or calling in sick more often (interviews?), that your company’s credit rating has been mysteriously downgraded, that your landlord gives you notice …

There’s no end to the unpleasant surprises in store for the business owner who unwittingly lets the news get in the wrong hands.

Whatever your intended route to exit - whether a company sale, a merger, a recapitalisation, an MBO, an MBI, a VIMBO or BIMBO - it pays to be extremely cautious about who knows what and when.

Historically, How Did Businesses Maintain Confidentiality?

Business have always appreciated that the job is doubly difficult because it's not a particular document or image that's being protected - those are easy to protect.

You're seeking to keep from the public domain that you are considering an equity event.

A single document, image, conversation or slip could give the game away!

The standard advice over the years has been to:

use trustworthy professionals whom you can rely on to be discreet;
take into confidence only those who absolutely need to know – keep everyone else out;
avoid disclosing anything in the “teaser” ad that could be reverse engineered to reveal identity;
get "watertight" NDAs signed by prospective buyers before disclosing information to them;
reveal information in stages and as needed rather than all at once;
keep paperwork relating to the sale under lock and key etc.

In this day and age, all that “standard advice” is still important ...but just not sufficient; it certainly doesn't take into account how technology has progressed and how that has impacted on confidentiality.

So I've updated the manual.