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Protecting Confidentiality During Mergers and Acquisitions

On Behalf of | Feb 27, 2023 | Firm News

A business that puts itself on the market for sale must be careful about leaks of confidential information that might harm ongoing operations. Employees may become nervous about their job security. Customers, upon learning the business may be sold, could bolt for another firm. Vendors and suppliers may begin to worry about the ongoing relationship. And competitors could pounce upon leaked confidential information. operations.

The general practice when a business is offering itself up for sale in an M&A (merger and acquisition) transaction is to have any potential buyer sign a confidentiality agreement or nondisclosure agreement (NDA). Sometimes, the buyer may desire for the seller to honor its confidential information as well in which case, a mutual confidentiality agreement may be negotiated.

If you are looking to sell your business located anywhere throughout the Coachella Valley, including Palm Desert, California, as well as communities in and around Imperial, Los Angeles, Orange, Riverside, San Bernardino, and San Diego counties, contact the Law Offices of Jerry J Goldstein. We will help you negotiate a confidentiality agreement to protect your interests and also shepherd you through the sales process and its various hurdles.

Our firm is located in Palm Desert, but please note that in providing services outside of our immediate area, we generally don’t bill for travel time from our offices to meet at the business location or home of our clients.

Information Important Enough to Keep Confidential

Depending on the type of business you are operating, different aspects may need to be kept under wraps so that employees, customers, competitors, and others don’t learn of what are proprietary. With every type of business, you certainly want to keep your financials confidential. No one outside of a prospective buyer needs to know your revenues, your expenses, your outstanding debt or other financial information.

If your business relies on trade secrets, if any, these are especially in need of confidentiality protection. Clearly your customer lists are proprietary, but the number and demographics of your customer base may also be important for a buyer to assess. In that case you will need to negotiate in what format or detail you would be willing to share your customer information.

If you have future growth plans you want to make certain that those are not somehow compromised, so that competitors won’t be able to zoom in and beat you to the proverbial punch.

You also may wish to enforce a “hands-off” policy when it comes to talking to employees. You’ll probably only want you and a management team you appoint to be involved in the sales process. There’s always the possibility, if the sale doesn’t go through, that the exiting buyer may try to poach your employees. Incorporating a non-solicitation agreement may serve to prevent that. Regardless, that is another reason to prevent communication with your staff except as designated.

What’s in a Confidentiality Agreement?

For all practical purposes, an M&A confidentiality agreement is basically the same thing as a nondisclosure agreement, except that it’s between buyer and seller and not between employer and employee, where NDAs are a common practice. The parts of the confidentiality agreement may vary, but in most circumstances, they will include:

  • Identification of the parties involved
  • Descriptions of what is to be deemed confidential
  • The scope of the obligation by the acquiring party
  • Any exclusions from the agreement
  • The obligation to return or destroy any shared confidential information by the receiving party
  • Terms of the agreement

The confidentiality agreement may seek to limit who among the buyer’s party may have access to the data, but the buying party, in turn, may need to share that information with employees, outside advisers, financing entities, and others. The agreement should address the sharing of the information beyond those named in the document. Perhaps a clause can be included whereby the acquiring party can obtain consent for any such sharing of informaion.

There are, of course, layers and layers of details that need to be negotiated, and that’s where the advice and services of a knowledgeable business law attorney are vital.

Speak With an Experienced Attorney

As soon as you begin to ponder the possibility of sell your business, reach out to us at the Law Offices of Jerry J Goldstein. We are dedicated to helping you prevent problems rather than simply dealing with them as they arise. We will help you with your sales transaction and protect you with a strongly-worded confidentiality agreement.

The Law Offices of Jerry Goldstein serves businesses throughout the Coachella Valley, including Palm Desert, California, as well as communities in and around Imperial, Los Angeles, Orange, Riverside, San Bernardino, and San Diego counties, among others.