Confidentiality is critically important when selling your business
For convenience services operators, here is the bottom line regarding the importance of confidentiality when selling your business: It protects the value you've built into your business as it relates to customers, suppliers and employees. A loss of confidentiality can upset all three of those critical value components. I have seen it happen – it is not pretty, but it is completely avoidable.
A serious matter
At VBB Advisors, we take the issue of confidentiality very seriously as we present your company for sale. First, VBB Advisors distributes what we call a “blind teaser,” a one-page document with very high-level information. It doesn't disclose specific geography. It doesn't disclose any company name, just general information. Here is an example of the content:
“Refreshment services business for sale – Southeast - annual sales are X, EBITDA is X, here are some key general features… If interested, contact us.”
As interested parties contact us, before we disclose any information, they sign a non-disclosure agreement (NDA). Once that is in place ,then we can share more detailed information with the prospective buyer.
The right NDA
It is important to note that all NDA’s are not created equally. We have a very comprehensive NDA that we use at VBB Advisors, but to enforce a confidentiality agreement, typically you have to be able to demonstrate damages, which can be very difficult to do. The important thing is to know the parties you are dealing with and that they are trustworthy. That is why we only deal with people at the highest corporate levels. These people understand that it is their responsibility not to disseminate any information. They are professionals. Rather than going out and dealing with branch managers or small operators that might want to kick tires, we're careful about who we bring to the table.
People fear change
Leaked plans for a business sale can seriously impact employee morale in a company. People fear change. It's human nature. Inevitably, the first thing an employee thinks when they hear a rumor about the sale of their company is, “I'm going to lose my job, or “They're going to take away my vacation,” or any number of employee related concerns. Often, the employees have enjoyed a very personal relationship with the owner. A company may feel like family to them, and some will fear moving to a more corporate environment. Accordingly, you want to keep news of a sale quiet until you absolutely know you have a definite transaction, when the ink is dry on the contract and the money is in your account. That is the time to make the announcement. Obviously, certain key people in your organization typically must assist with the process of the sale. They need to know about the sale, but it shouldn't go beyond that.
Beyond employee issues
The importance of confidentiality goes beyond your employees. An information leak that evolves into a rumor can negatively impact several business relationships.
Suppliers – They can become concerned about losing your business, which can change their willingness to extend credit or to provide the best possible service.
Customers – If they panic about having a new supplier(remember, nobody likes change) – that can open the door for your competition.
Management companies and national accounts – You may not have an assumable clause in your contract, which makes it important for you to carefully manage the transition, making sure that everyone is happy and confident about the sale. You want to be the one who breaks the news about the sale of your company to a national account or a management company.
On one occasion in the past, a key employee working for my client, an employee who was involved in gathering data for the sale of the business, leaked information about the sale to a supplier. He was asking the supplier if he knew of anyone who was hiring an assistant controller. That news travelled quickly, as it always does, and a third-party management company got wind of it. As a result, my client lost a large chunk of business that was managed by that third party company. They were completely blindsided by that loss of sales and as a result, their business sold for less money.
Prevention Strategies
That sad management company scenario illustrates how important it is to take internal steps to keep confidentiality intact as you work through the process of selling your business. Some steps to take:
Have a serious conversation with the key employees who are assisting you with gathering data and other tasks related to the sale of your business. Reassure them that they will be rewarded for their work and their confidentiality. Follow through on that promise.
Establish an information flow procedure that will limit the possibility of a leak or rumors. Example: As the seller, have the buyers representative contact you by cell phone instead of through main reception. Set up a new email address strictly to deal with issues pertaining to the sale.
Certain suppliers on the financial side of the business will need to know about the sale. Ask them to use special care when sending emails regarding insurance, retirement plans and other matters in that category. One of my clients was stunned when his insurance agent sent an email to the “wrong Robert,” regarding his insurance plan after the upcoming sale. The Robert who received the email was the service manager, not the partner named Robert who was the intended recipient of the email. Fortunately, the “wrong Robert” used discretion and quietly informed the owners what happened. Ultimately, he was rewarded for his good judgement.
Successfully maintaining confidentiality during the sale of business gives a seller the confidence needed to address the sale and keep the business running, without dealing with the noise and stress that occurs when rumors of a pending sale begin to surface.
At VBB Advisors, we will be there to guide you through the process, as the seller’s representative, working exclusively to ensure a successful outcome and ideally, a stress-free experience.
Take that first step
Buyers come to us because they know that we serve sellers who have thoroughly and thoughtfully considered their exit strategy with my help. That is the type of seller that you want to be – a seller who has their ducks in order, has taken steps to make their business as attractive as possible and a seller who values their employees enough to make a deal that everyone will feel good about.
Take that critical first step. That is often the toughest one to take.
Order our free 2024 Exit Strategy Planner. At the very least, it will provoke some thought, and this is a good time to think about your future.
Whatever your reasons are to sell your company - the timing, a sense of frustration, the desire to enjoy life or an interest in rewarding yourself for years of hard work – VBB Advisors can help you realize your goals.
I am Mike Kelner, the leading sell side intermediary in the convenience services industry. Let’s sit down and have a conversation. Use this appointment scheduler to set up a meeting with me.
Or – give me a call at 704-942-4621
