We are frequently asked about this by our vendor clients. A good adviser will ensure that appropriate confidentiality agreements are in place to protect, as far as possible, against ‘leaks’ from would-be buyers but, inevitably, leaks occasionally can and do happen.
In most instances, the implications of a ‘leak’ are perceived by vendors as more serious than the reality. However, it is the adviser’s job to address the problem because, even if it is exaggerated in the vendor’s mind, it needs to be handled professionally.
In most cases, vendors have 2 ‘sets of’ fears in relation to confidentiality:
Employees: Vendors fear that if employees find out that the business is for sale they will fear for their jobs under new ownership and will look for employment elsewhere.
Customers: Vendors fear that customers finding out that their supplier is for sale will look to re-source because of uncertainties about the future ability of the vendor’s business to supply.
Considering the Employees first, there are a number of points worth bearing in mind:
- Almost without exception, Purchasers acquiring a business will be anxious that ‘good’ employees stay in order to preserve the goodwill of the business they now own. Therefore, employees can reasonably expect their lot to improve rather than worsen under new ownership
- The impact of new ownership generally leads to an injection of new blood, new capital new enthusiasm etc. All these things are good for employees
- Employees aren't stupid! For example, they understand that older owners are not immortal (!) and they may well be wondering ‘when the old guard is going to call it a day’ and will be happy to find out that the issue is being handled in a professional way.
- They are, in any case, going to find out at some point before the vendor ‘hands over the keys’!
When it comes to Customers, the most important point is that, if they are receiving a good service from the vendor’s business, they will not lightly change their allegiance. They will probably have many suppliers and they will understand that ownership change is inevitable. Bearing in mind that customer-continuity will be a vital issue to the business purchaser, it is likely that the acquirer will want ‘comfort’ in relation to this point and may well ask to speak to 1 or more key customer as part of due diligence.
So what’s the answer? Ultimately, it is, of course, up to the vendor but our advice is that, as soon as the business is placed on to the market, thus creating the risk of a leak, it is better to brief key employees and sometimes, key customers, about the sale process. By doing this the vendor can ensure that the messages given out are the right ones (eg the points above in relation to employees, ‘searching for the right purchaser to ensure employees/customers are ‘looked after’’, ‘no rush’, ‘professional advisers helping’, ‘vendor staying on to ensure a smooth transition’ etc).
This contrasts with, for example, a junior member of the workforce finding out the business is for sale from his girlfriend’s mum, who works as a cleaner and sees a copy of a Briefing Document on a desk at a would-be buyer’s offices, and then spreads the news amongst the employees and customers in an uncontrolled and hyperbolic fashion.
At Anderson Shaw we always ensure that stringent processes and documentation are in place to protect our clients’ confidentiality.