insideARM is launching a new feature called “Ask the Experts,” an interactive section that will allow you to direct questions to the Kaulkin Ginsberg advisory team and its network of experts throughout the industry. You’ll have the option to identify yourself or remain anonymous if we publish your question. Here is a sample question posed recently:
Q: I run a small but profitable collection agency and I was recently approached by a potential buyer. This buyer seems legit, but I’m concerned about disclosing sensitive information. How should I proceed?
A: From Mark Russell at Kaulkin Ginsberg:
The last thing any business owner wants to do is waste time with the wrong buyer candidates. Not only is this disruptive to the business, but it can also put your company at risk. You might find yourself sharing proprietary secrets with a current or potential competitor. Or, you may run the risk of your clients or your employees learning about the potential sale before you’re ready to disclose it.
Before sharing your proprietary information with one or more buyer candidates, it is important to do the following:
Confirm the buyer is qualified.
Make sure that the buyer candidate has the financial wherewithal to acquire your business. This may seem obvious, but you don’t want to go through the entire sale process only to discover that the deal could never have happened.
Execute a confidentiality agreement.
While these agreements ultimately are only as good as the two parties that are executing them, it gets the process off on the right foot and lets the buyer know that you are serious about confidentiality.
Provide a confidential summary of your company.
This should enable the buyer to learn enough about your business to determine a value range, but not enough to jeopardize it if things do not work out. Information such as client and non-owner employee names are typically left out of a confidential summary, but an understanding of the markets you service and the percent of revenues generated within each of them, as well as by the top 10 or 20 clients on a no-name basis would be reasonable to include. You should also include a financial summary that shows the company’s historical and future financial performance, as well as brief bios on the executive team members, again without names unless they are owners.
Once you get beyond the introductory phase and have gained an understanding of the buyer’s value range and preferred deal structure, if things are still progressing, then it is most likely appropriate to begin sharing some proprietary information that they will need to conduct some due diligence and ultimately present you with a letter-of-intent.
In your case, you have a buyer candidate already. We would be remiss if we didn’t mention that in order to maximize your value potential, it is important to maintain a competitive process up until the point in which you are prepared to execute a non-binding letter-of-intent. While deals can and do get done on a regular basis between a single seller and buyer, sellers will never know if they have maximized their value and preferences in a transaction unless they are in a position to negotiate multiple offers and choose the best one.
If you have any questions you would like answered in this forum on insideARM.com, please email editor@insidearm.com and read the “Ask the Experts” blog at http://www.insidearm.com/go/blogs/experts.
Mark Russell manages M&A transactions for Kaulkin Ginsberg. To confidentially discuss your business interests, please contact Mark at 240-499-3804, or by email.