Entering the M&A market when you are looking to sell your business requires that you disclose all of your information including financial statements, gross margin on the products you sell, business plan, vendors, customers, and many other details that you would not disclosed in nearly any other situation. Because this information is so confidential and highly classified, it is important that a few precautions are taken before disclosing the information.
As part of the M&A process, a Confidential Marketing Memorandum is prepared along with a teaser letter (both of these documents have many different names depending on which banker you talk to). The teaser letter is a document that is designed to catch an investor’s attention without giving enough information to figure out which company is for sale. The CMM is designed to give the majority of information that an investor would need prior to making an offer and beginning the due diligence phase. If any of your employees, customers, or competitors knew that your company was on the market, immediately damages could begin to accrue. This is why the teaser letter goes out first then, if there is interest, an NDA is signed and the CMM is disclosed.
The Non-Disclosure Agreement for selling your company is a document that will be prepared by your banker. This document simply states that all of the information that will be disclosed will be used solely for the purpose of exploring an acquisition. It also states that the signer will not disclose the information to anyone else, and that if they do they will be responsible for damages. Basically, the NDA will ensure that if anyone uses the highly confidential information that the selling company discloses then that person or entity will be held liable in court and will have to compensate the seller for damages to the company.
Once the NDA is signed it is important for the seller to realize that the information can safely be disclosed. One of Deal Capital’s clients is currently undergoing the due diligence phase with a private equity group. At the time being, the client is extremely hesitant about revealing some key information that the PE group would be concerned with. Since there is an NDA in place if the PE group even entered the market that our client is in, then that group could be held liable. That is a risk that buyers understand they take on when signing the NDA so the seller need not worry about the information disclosure.