How Confidentiality Kills M&A Deals (and Companies) if Not Handled Properly

Vijay Malhotra covers the importance of confidentiality in an M&A transaction, and how it can prove to be a key success factor in closing a deal.

Written by: Vijay Malhotra

Maintaining confidentiality during an M&A deal is an art that can make or break the most important transaction of your life.

Here are the (often competing) considerations every seller should keep top of mind:

1.

Maintaining Employee Morale and Retention:

Avoiding the spread of rumors keeps employee morale high, preventing premature resignations and maintaining productivity.

“Nothing spooks a buyer and more than employee mutiny in the middle of due diligence.”

A controlled and reassuring communication plan should be implemented only once a deal is finalized (typically just weeks from closing).

2.

Timing Key Personnel Involvement:

As outlined above, the risks for distraction are high, but excluding management team members from the process, or bringing them in too late in the process can also backfire on you.
Key team members’ strategic insights and involvement are essential for answering deep-rooted questions and ensuring a smooth transition and integration post-transaction (particularly if they are going to be running the business when you exit).

3.

Respecting the Importance of Customers & Suppliers:

Overlooked stakeholders, such as key suppliers or customers (and let’s not forget minority shareholders), can jeopardize a deal if not informed at exactly the right time in the process……not too early, not too late.

“We have seen “change of control” provisions in customer contracts delay closing because a key customer felt they were notified too late.”

Similarly, suppliers can view a company sale as the perfect time to re-negotiate higher pricing or more aggressive terms—that landlord you have had a great relationship with for 20 years can really surprise you just a few weeks from closing.

LEAN ON AN EXPERIENCED M&A ADVISOR TO MAXIMIZE CONFIDENTIALITY

We at WD Capital have the benefit of hundreds of transactions and have literally seen it all. With that comes a unique toolbox to make sure confidentiality doesn’t jeopardize a sale, a few key strategies:

Starting with a highly curated, well-vetted list of target buyers (less is more here)
Employing one-to-one outreach to targets (no email blasts - we prefer a laser shot to a shotgun approach)
Using “anonymized” marketing materials for initial outreach
Allowing only highly qualified buyers to sign airtight NDAs to continue in the process
Conducting buyer/seller meetings virtually or offsite (versus allowing a parade of suits through your factory floor during business hours)