Wednesday, May 13, 2009


Confidentiality is not just a seller issue. A buyer needs to be very concerned that the sale of a business is handled with care when it comes to employees, clients and vendors. I am continually surprised at the cavalier approach some buyers and sellers take to this critical issue.

A buyer on one of our listings made an innocent, but very disruptive, mistake during the due diligence stage of a deal. The buyer and seller had negotiated a contract for sale and the buyer was reviewing the operational and financial records of the business. During the buyer's discovery process he decided to contact an industry third-party to ensure that the company was in ‘good standing’ and all licensing was up-to-date. Seems like a reasonable step in the process, UNTIL the person the buyer called started to ask questions about who was calling and why the buyer wanted this information.

What the buyer did not know was that the person on the phone knew the company very well and, in fact, several of the employees were his friends. The buyer immediately realized this call was a mistake and he requested that the contact keep the call confidential.

The very next day the sellers arrived at the office to a group of anxious employees. The dam was breached, as the contact at the industry third-party wasted no time in calling his friends at the company.

The business is now at risk. When employees find out a business is for sale prior to the transaction closing they become nervous and their survival instincts kick in. They start to ask lots of questions and this atmosphere of uncertainty can cause them to start looking for other opportunities, become destructive or hold the deal hostage by placing demands on the buyer or seller.

The risks are obvious for the seller. The buyer may also be impacted should they take over a business with disgruntled employees. No good can come from compromising the confidentiality of a business. Any demands during a negotiation to meet with employees, clients or vendors should be resisted or the consequences can be devastating.

No comments: