Confidentiality when selling a business

The reason business sales are confidential is not secrecy for its own sake. It is that the information itself is damaging while the sale is uncertain.

Staff who hear the business is for sale start applying elsewhere, and the good ones succeed first. Customers who hear it start taking calls from competitors, because a change of ownership is the one moment a long relationship is genuinely in play. Suppliers reconsider credit terms. Competitors use it: there is nothing improper about a rival telling your customers that you are selling, and some will.

And the sale may not complete. Then you are running the business you still own, with the damage already done.

What is actually confidential

Not everything, and it is worth being precise about this, because sellers who try to keep everything secret end up unable to market the business at all.

Filed accounts are public. Anyone can read them on Companies House for free, in about fifteen seconds, and a serious buyer will have done so before your first conversation. Your registered office, your directors, your persons with significant control and your charges are all public. If your business is regulated or licensed, more is public still.

What is confidential is the link between the business and the fact that it is for sale, plus everything that is not on the public record: the management accounts, the customer list, the margins, the pipeline, the staff, the terms of the lease, and the reason you are selling.

Stage one: the anonymised teaser

The teaser is what everybody sees. It has to do two contradictory things: attract a buyer, and identify nobody.

A teaser typically carries the sector, the region at a sensible level of granularity, a turnover and profit band rather than exact figures, the tenure, an approximate staff count, the reason for sale, and two or three sentences on what makes it attractive.

What identifies a business, more often than people expect:

• Precise figures. "Turnover £1,143,000" is a fingerprint. "Turnover £1m to £1.5m" is not.
• Precise location. "Established restaurant in Marlow" narrows it to a handful. "Established restaurant in Buckinghamshire" does not.
• A distinguishing detail. The 2019 refit, the 90 covers, the three vans, the contract with a named council. Any one of these is fine. Three together are a name.
• Photographs. A picture of the frontage with signage removed still shows the street.
• The reason for sale. "Owner retiring after 31 years" tells anyone in the trade exactly who you are.

The test is not whether a stranger could identify you. It is whether a competitor in your sector and region, who is actively interested in who might be selling, could identify you. That is a much lower bar and it is the bar that matters.

Stage two: the non-disclosure agreement

A buyer who wants more than the teaser signs an NDA first.

A workable NDA for a business sale covers: what information is confidential, that it may be used only to evaluate the acquisition and for nothing else, who it may be shared with, an obligation to return or destroy it, a non-solicitation undertaking covering staff and customers, and a term. It should also say explicitly that the existence of the discussion is itself confidential, because that is the thing most likely to leak.

Two practical points.

Click-wrap is fine, and it is better than a PDF. An NDA signed by ticking a box on screen, with the text recorded as shown, the time captured and the identity tied to a verified email address, produces better evidence than a scanned signature on a document nobody can locate eight months later. What matters is that you can demonstrate what was agreed, by whom, and when.

Versioning matters. If you change the wording, bump the version and keep the old one. An agreement signed under version one is governed by version one, and being able to produce the exact text somebody accepted is the entire point of having it.

Stage three: staged release after the NDA

Signing an NDA is not a key to everything. Disclosure continues in stages, and the stages are a judgement about risk against seriousness.

| Released | To whom | When | | --- | --- | --- | | Teaser, anonymised | Anybody | On going to market | | Name, location, detailed financials | After NDA | On request from a credible buyer | | Lease, employee schedule anonymised, contract summaries | Serious buyer | After a meeting, usually | | Named customer contracts, full payroll, supplier terms | Preferred buyer | After heads of terms, often to advisers only |

The most sensitive categories, in most businesses, are the customer list and the staff. Those are the two things a competitor could use directly, and they are usually the last to go out.

The competitor problem

The awkward truth is that your most likely buyer is frequently a competitor. They understand the business, they can see the synergies, and they can often pay more than anyone else because the acquisition is worth more in their hands.

They are also the party who could do the most damage with the information.

There is no clean answer, but there are workable approaches. Stage them more slowly. Release the commercially sensitive material to their professional advisers on an advisers-only basis rather than to the principals. Require a stronger non-solicitation undertaking with a longer term. Ask for proof of funds earlier than you otherwise would, so you are not disclosing to somebody who cannot buy. And be willing to decline: a competitor who will not sign a reasonable NDA, or who will not evidence funding, is not a buyer.

Telling your staff

This is the question owners agonise over, and the honest answer is that there is no timing that is comfortable.

The legal position, if TUPE applies to your sale, is that you must inform and consult employee representatives in good time before the transfer about the fact of it, when it will happen, the legal, economic and social implications, and any measures envisaged. That obligation attaches to the transfer, not to the marketing, so it arrives late in the process.

The commercial position, for most owners: tell the senior people once the deal is advanced and reasonably certain, because you will need their cooperation in due diligence and because they will work it out anyway once buyers start visiting. Tell everyone else at or shortly before exchange, with the buyer present if possible, so the first thing the team hears about their new owner comes from the new owner.

What goes wrong is the middle ground: a rumour, unconfirmed, circulating for four months. That is worse than either telling them or not telling them, because it leaves people to invent the answer.

A short checklist

• Write the teaser and then ask somebody in your trade whether they can guess who it is.
• Use a real NDA, keep it versioned, and record who accepted which version and when.
• Decide the release stages before the first enquiry, not in response to one.
• Ask for evidence of funding before releasing anything a competitor could use.
• Keep an audit trail of what each party received. It is the thing you will want if this goes wrong.
• Talk to the senior team before they hear it from somebody else.

Confidentiality is not a document. It is a sequence, and it holds up because of the sequence rather than because of the paperwork attached to it.