Process Mistakes that Reduce Busines Value During a Sale

Between the time when a business owner puts his company on the market and the closing date, there are two events that can occur which either kill the deal outright or negatively affect the final sale – the inadvertent disclosure of the sale and the accidental disclosure of proprietary information to competitors and customers.

The most common is the inadvertent disclosure of the impending sale. When the sale is unexpected and word leaks out in an uncontrolled manner, it has the very real potential to sink the deal in a variety of ways. For one, when employees discover that the company is for sale, they wonder what else they don’t know and become concerned that they may be on a sinking ship. They may put out feelers and begin to look at other employment options. As key employees leave, the value of the business is negatively affected. The entire sale may die if enough people leave. Moreover, employees that feel blindsided may lose respect for the company and management, affecting their performance even if they stay.

The inadvertent disclosure of the sale may also cause customers to question the reason why the owner is selling. They may begin to look for alternatives, fearing that unwelcome changes may occur after the sale. Competitors can use the news of the sale to pirate your best customers and employees. Even your suppliers may start selling to your competitors because they are uneasy about the future.

In addition to the inadvertent disclosure of the sale and all the negative things that snowball out of it, sometimes during the due diligence process the seller will discloses proprietary information to competitors and customers. Generally, the potential buyer is covered by a confidentiality agreement. However, the due diligence process performed by the buyer sometimes creates enough confusion that proprietary information is mistakenly disclosed. Someone somewhere makes the incorrect assumption that what they are discussing isn’t consider proprietary and word leaks out. Once the bullet has left the gun, there is no getting it back.

How will you protect your business value against inadvertent disclosures?

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Note: This post originally appeared April 6, 2016 at SteveBizBlog.com

 

1 reply
  1. John Marshall says:

    I enjoyed your post Steve. I was involved in the sale of a business where one of the owners posted about the impending sale on social media.. The investors were livid and the sale never happened. Still not sure if that was the deal-killer but it did make for a bad environment for a deal to be made.

    Reply

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