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Confidentiality: Reasons for its existence in Mergers & Acquisitions

Major harm can be done when you are working on deal in mergers & acquisitions when things are not kept extremely confidential. Making sure all parties are aware that fiduciary responsibilities must be kept on a “need-to-know” basis. When we speak of every party involved, it includes bankers, company shareholders, the board, attorneys, accountants and yes even family.

This certainly may seem a bit drastic and extreme, but let me paint an interesting picture. For instance, if information was leaked at the wrong time, customers could find out. And, when customers find out, they can sometimes talk to one another and all jump ship together, running to the competition. You should be able to immediately see why this is not a good thing.

First, if you are suffering from a significant loss of major customers during a time when company valuations are based on said customers, your overall value could drop over night. So, if someone on your board or in your family is the type that likes to flap his/her yapper and cannot keep a secret prior to the complete deal closure, it may be wise to keep them out of the loop.

Secondly, when a deal goes south it can have a ripple effect not only on the value, but the ability to sell the company at all. It may turn off the initial interested parties altogether. Other parties who had shown interest previously may want to walk for fear they would then be dealing with “tainted goods.”

Another aspect of confidentiality comes into play when you are giving potential buyers information. It is certainly important to be open and have complete integrity when dealing with potential buyers, but if you are planning on giving such a prospect a list of customers, employees or even vendors with financial information, it is generally wise to blot out all information relating to who and keep any dollar amounts rounded.

Unlike the real estate world, businesses that are for sale do not have all the information readily available and posted to websites and magazines. Business transactions are highly dissimilar in this way and require a much greater deal of confidentiality. It helps M&A advisors when the client understands the vital importance to keep things quiet and confidential when doing a deal. Sensitive information is best kept under wraps, at least until the deal is finalized and the liquidity event has taken place.

 

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Nate Nead
Nate Nead is a licensed investment banker and Principal at Deal Capital Partners, LLC which includes InvestmentBank.com and Crowdfund.co. Nate works works with middle-market corporate clients looking to acquire, sell, divest or raise growth capital from qualified buyers and institutional investors. He is the chief evangelist of the company's growing digital investment banking platform. Reliance Worldwide Investments, LLC a member of FINRA and SIPC and registered with the SEC and MSRB. Nate resides in Seattle, Washington.
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