Last week, I had two back-to-back calls with business owners.
The first CEO, we’ll call him Jason, joined the call to discuss one final detail in our non-disclosure agreement (NDA). We were on version 10 of revisions, with each back-and-forth reviewed by his attorney. The last open item to nail down was the venue clause, where we agreed that if any dispute arose from our confidentiality, we would resolve them in Wyoming (a location that would be equally inconvenient for both of us).
He hadn’t told a single member of his team about his plans, not even his assistant, CFO, or his son that worked in the business.
My next call with a seller, who we will call Jennifer, couldn’t have been more different. “I don’t believe in NDAs,” she said. “Everyone shares this stuff around anyway; I don’t care. My whole company knows we’re building this to sell.”
Both companies are founder-owned. Both are already worth over $50 million, and both owners have a vision of an eventual $500 million-plus exit. Yet, their views on confidentiality are diametrically opposed.
Why Confidentiality Matters
Jason has legitimate reasons to be worried about confidentiality. If news of a possible sale surfaces prematurely, it can create ripple effects that impact the entire organization. Employees may worry about job security and start polishing up their resumes. Customers can begin to question the stability of the relationship, while competitors may jump at the opportunity to lure business away.
In all of these ways, the protection of information flow can affect the most impactful lever in a sale process: the consistent growth and profitability of your business.
Can Confidentiality Go Too Far?
Jennifer isn’t wrong either. Time kills deals, and NDA negotiations add a lot of time to the process. Professional buyers evaluate a lot of deals. Give them pages of redlines, and they may just throw your opportunity in the bin.
Buyers also pay up for having a deep management bench that works together with cohesion. Keeping the most key players in the dark about a sale process adds significant risk to a potential ownership transition.
Role Of NDAs
It is absolutely “market standard” to have buyers sign an NDA before receiving the Confidential Information Memorandum (CIM) in a sale. However, we encourage sellers to make their confidentiality agreements “buyer friendly” to encourage a fast turnaround, while operating under the assumption that their information might get leaked.
How can a business owner get comfortable with the fact that their info might get out? By not sharing in the CIM, anything that could cause damage to the business. If someone wants to spread rumors about you selling the business, they can do that any time they want, even if you’re not selling.
If the identity or nature of your relationship with your key people, key customers, or key suppliers are part of your “secret sauce”, simply don’t name them in your materials. The purpose of a sale process is to evaluate potential investors for their level interest, their willingness to pay, and their fit with your organization. You can do all of that without giving them your employee roster or a detailed run on sales by customer.
The NDA is there to protect you in the case of blatant abuse of confidentiality that directly hurts your business. It will not protect you from rumor-mongers.
Who to Bring Into the “Inner Circle”
One of the most important decisions in a sale process is deciding who inside your company should be brought into the loop, and when. Telling too few people will slow you down, while telling too many can create anxiety or risk leaks. Start with the people who are essential to the preparation process, such as your CFO, controller, head of operations, or sales leader. Whether your company has these titles formalized or not, the group presenting the business to buyers should be your equivalent of “the C suite”.
Silence or Open Book?
So, what’s the right approach? The silent Jason, or the open-book Jennifer?
As you might guess, we recommend an approach that blends the two.
Silence | Open Book | |
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Benefits | § Reduces the risk of rumors reaching competitors, customers, or employees § Preserves focus within the company while exploring a sale § Provides time to evaluate interest without external pressure | § Encourages collaboration and speeds up preparation § Gives buyers access to key team members earlier in the process § Reduces thechance of disruption later, since employees are already informed |
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Drawbacks | § Can delay the process or frustrate potential buyers § Limits internal involvement, making it harder to prepare information or get support § May signal to buyers that the seller is overly cautious or uncertain | § Increases the risk of leaks to the market or industry peers § May cause uncertainty or anxiety among staff if the deal doesn’t move forward § Could weaken negotiating leverage if buyers perceive the process as unstructured |
Ask The Right Questions
Instead of defaulting to a one-size-fits-all playbook, owners should ask themselves a few key questions:
- Is there any information in my CIM that, if it was leaked, would hurt the business?
- Who on my team really needs to know right now, and who can wait?
- What kind of buyers am I targeting, and how will they expect the process to be run?
- How broad to I want my auction process to be?
The Best Approach Is a Thoughtful One
At Roadmap Advisors, we’ve supported business owners across the spectrum: from carefully managed and hyper confidential negotiations to broad and open processes. The key is not which end of the spectrum you choose. The key is choosing with intention. If you are considering your next steps and want to understand how confidentiality can be actively managed, contact one of our m&a advisors to get started today. Our team is ready to listen, share perspective, and help you move forward when the timing is right.