Legend has it that business people were a tad more honourable in the past, but these days, you can’t afford to trust everyone who comes knocking to a look at the business you’re trying to sell
Once word gets out that your business is for sale, some of your competitors may well be interested in lifting the lid on your operation, and having a snoop at your customers, suppliers and bottom line.
That’s not always a bad thing, because many businesses end up actually being bought out by their competitors. In many ways, that makes a lot of sense. Your competitors will know the industry, best and they’re often the ones that can make the best synergies by buying up some more market share, or growing their own business through strategic acquisitions.
So, as a Seller, you should really expect that your rivals will be amongst those who come knocking on your door, as soon as you put up your ‘for sale’ sign.
However, even if a Buyer was genuinely interested in purchasing your business, that doesn’t guarantee that the sale will definitely go through. And if that happens, you don’t want to be stuck in a situation where you end up handing your competitor a bunch of your valuable trade secrets for free.
So, how can Sellers avoid this problem?
There are two principle ways of giving your business the protection it needs, while you’re still negotiating the sale as follows.
- Confidentiality Agreements
You should always ask a prospective Buyer to sign a confidentiality agreement.
Even if the proposed Buyer is not currently competing with your business, you still don’t want to give them all your tricks of the trade, in case they decide to use that information to start their own business instead of buying yours.
Although notoriously difficult to enforce, confidentiality agreements are still useful to have because:
- they act as a deterrent, making a potential Buyer think twice before committing an obvious breach; and
- they show your Buyer that your serious, and legally-savvy.
If you don’t have a confidentiality agreement in place, your Buyer may feel that they have carte blanche to use your confidential information any way they want.
However, while confidentiality agreements are an important first step, practically speaking, it’s almost impossible to actually find out what the Buyer has done with your information. Even if the breach is plain and obvious, confidentiality agreements are notoriously difficult to enforce in court.
In simple terms, although you need to sign one, you never want to have to rely on one.
So what else can you do, to protect your trade secrets?
- Selective Disclosure
The second string to your confidentiality strategy is called ‘Selective Disclosure’.
In a nutshell, that means that you think very carefully about what information you want to give over to a potential Buyer, and when you want them to get it.
As a Seller you don’t have to reply with full details to every request you may receive. There is a time and place for everything. You should inform your lawyer if the Buyer is asking you to disclose confidential information or trade secrets. (Don’t just rely on your lawyer to realise that certain pieces of information are highly confidential). Your lawyer can then advise you whether it’s necessary to give that information over at all, and whether or not disclosure can be delayed.
In some cases, it may be sensible to share sensitive information only once lawyers have been instructed, several meetings have taken place and the documentation is already well on the way to being concluded or the deal is well on its way to completion.
With both strategies correctly in place, a Seller can then feel comfortable about giving the information over to a Buyer that he needs to properly assess the business, without losing too much sleep.