As you work on an acquisition deal, it’s important to keep the details quiet at first.Acquiring a business is an involved process that should only involve those who are necessary, such as the board, accountants, attorneys and others who form your M&A team. You must also take care when telling family members about this important next step.
When the details are not kept confidential, you risk the value and productivity of the business plummeting overnight. Here is why you should keep acquisition deal details under wraps.
Loss of Customers
Speaking up about the acquisition before the deal is done risks alienating a loyal customer base. If someone close to you tends to speak freely, limit details around this individual.
Company valuations are based on these customers. So, the value drops when those loyal customers decide to jump ship because they do not know the new owner well. That drop in value can severely affect the company and lead to the deal being terminated.
Company Reputation Shifts
Part of selling a business means the reputation of the company is also attached to the sticker price. When news gets out too soon about the acquisition, the company may end up sitting on the market longer than anticipated. Customers find out and direct their attention elsewhere, and the rumor mill starts degrading the reputation of the company.
Some competitors may use this information against the company, creating rumors that guarantees will not remain intact after the acquisition.
The shift in reputation can turn off interested buyers. Those who were interested in making a deal may walk away altogether.
Risk For Sensitive Information Leaks
Sharing sensitive details like financial information and patents are part of giving buyers relevant information. But providing this information at the wrong time or to the wrong person risks leaking sensitive information.
Each party in the acquisition deal should have integrity, but caution is an important ally as the deal is made. Your M&A adviser should guide your through how and when in the diligence process to share sensitive information such as supplying lists of employees, vendors and customers with financial information.
Employees Panic and Quit
Employees panic as rumor spreads of an acquisition. Will they keep the staff or hire new employees? Which departments may be cut? Which positions?
As the saying goes, “It’s better to be safe than sorry.” Employees quit instead of waiting around with so much uncertainty The talent and skill of the staff move elsewhere, further devaluing the company. The new owner loses the ability to run the business and make a profit.
Vendors Make Contracts Elsewhere
Vendors are not any less susceptible to the rumor mill than customers or employees. When ownership changes hands, nothing about the future is set in stone to outsider eyes. That creates panic where the new owner may only see the potential.
Vendors may worry the company is in trouble. Fearing their contracts may not be renewed, they start to tighten up the remittance terms and/or increase the pricing
Selling a business isn’t like listing a house for sale with a real estate agent. All the information is not readily visible and requires a higher degree of confidentiality. Sensitive information remains protected until the final deal is sealed and a successful exit is earned.
Always Have an NDA in Place
Never begin disclosure to a prospective buyer without having a well-drafted and completed non-disclosure agreement (NDA) in place. The NDA will protect all proprietary information and company secrets.
The prospective buyer cannot disclose or use the company’s confidential information as outlined, only what is necessary. The NDA restricts the prospective buyer in making contact with vendors, customers and employees and cannot solicit employees if the deal is not finalized.
Your M&A advisory team will help you construct a solid NDA. Contact us a Sun Acquisitions to confidently and confidentially navigate the acquisitions process.