If you must sell

Modern Machine Shop, May, 1991 by George Spilka

While it should convey what the purchaser needs to know, it must not disclose any proprietary information. You are trying never to give more than you get. The prohibited disclosures include things such as key customers, how your products are priced, and the margins realized on specific lines; in other words, how you truly make your money. If this information gets in the wrong hands, it can be used against your finn in the future. In most cases, such information is not divulged until a commitment is made to buy your company at the attainable premium price.

The MOI should protect the confidentiality of your company to the greatest possible extent. Obviously, it will not mention your firm's name. It might also be advisable to omit the company's exact geographic location. However, this is not a must. This is one of the many aspects of the acquisitions game that is not black and white, but rather a gray area requiring the expertise of an acquisition specialist.

Confidentiality

Some owners verge on paranoia regarding the confidentiality of a sale. Confidentiality is a critical aspect of the acquisition process, and loss of it should be prevented.

The longer a sale takes to finalize, the more likely confidentiality will be lost. A sale should never require more than six to twelve months to consummate. In a typical situation, you should be talking to the eventual buyer within two to four months from the date of starting the process.

Things can be done to minimize the risk of losing confidentiality. Avoid marketing the company in your home or local markets. Do not consider competitors or customers as prospective buyers except as a last resort. If they possess less than the highest moral fiber, they might use the knowledge of the intimate aspects of your company against you. A buyer should never know the name of your company until he has committed to visit the facility. This might sound impossible, but it is practical and extremely logical.

I don't insist on formal confidentiality agreements, although they can't hurt. They reinforce your legal position if you have to sue someone for the misuse of confidential information. You don't want a lawsuit, so do your homework up front. Do not institute talks with buyers in whom you do not have reasonable confidence.

Screen Potential Buyers

You must maintain control prior to a buyer's first visit. The question is, How?" First, require the buyer to open up to you as you open up to him. Do not allow him to take the position that, since he is the buyer, he has a right to know; and, since you are the seller, you must show all of your goods without a reciprocal exposition. Take the position that both of you have something to offer. You have a company for sale and he has capital for an acquisition. An investigation here will determine if there is a match.

You must determine if the buyer has adequate capital before you open up to him. This is done by requiring the potential buyer to bring his financial statements to the first visit. Sincere buyers are usually more than willing to provide this information as a goodwill gesture. If, at this point, your perception of the buyer's motives do not make complete sense, it may be wise to cut all ties.