One issue that we encounter on a regular basis when selling a business is the reluctance on the part of a business owner to provide information regarding their business to a prospective buyer. This reluctance is only natural. Private businesses are inherently private. However, a desire to not disclose information simply for privacy’s sake can be a significant impediment to maximizing the price of the business and in some cases can jeopardize the sale altogether.

To protect a client’s confidential information and to facilitate a smooth sales process we insist that all of our clients have a confidentiality agreement (sometimes also referred to as a non-disclosure agreement) drafted by their lawyer. The confidentiality agreement is usually drafted to contain clauses which protect the seller from a potential buyer’s improper use of the information provided by the seller. The agreement will usually include a non-solicitation clause (the potential buyer agrees not to hire any of the seller’s employees for a certain period of time) and will set out the recourse available to the seller if the potential buyer breaches the agreement. This confidentiality agreement is signed by a potential buyer prior to receiving any financial or operational information.

Even with the protection of a confidentiality agreement some clients are reluctant to share information that they consider to be particularly sensitive. To alleviate these concerns we often manage the information flow in stages whereby high level summary information is provided at the first stage to allow buyers to conduct their initial analysis. Based upon their level of interest and the nature of their relationship to the seller (i.e. competitor, supplier, customer, financial intermediary) more detailed information (yet without providing truly sensitive information) can then be provided to allow the buyer to put together a letter of intent. The letter of intent is generally subject to due diligence. It is only during the due diligence stage that the buyer is provided more sensitive information. In some cases highly sensitive information remains protected throughout the entire sales process.

We often encounter an extreme reluctance on the part of sellers to provide a potential buyer with their financial statements. In our view, this is generally unwarranted. Except in special cases, financial statements do not provide information that would give a competitor or supplier a distinct competitive advantage in the marketplace if the transaction were not to proceed. However, the seller’s financial statements are usually a fundamental component of a buyer’s analysis and it would be very challenging if not impossible for a buyer to prepare a serious offer for a business without having first reviewed its financial statements.

A well drafted confidentiality agreement is the first and most important step in protecting information during the sales process. However, a staged approach to the provision of information can go a long way to balancing the desire to retain private information with the goal of achieving a successful sale.