The secret is protected beneath layers of security in a non-descript bank vault deep in the suburbs of Atlanta.
Legend has it only two living people know the formula, which is so precious they are not allowed to travel on the same plane. Coca-Cola will go to any length to protect its recipe.
Likewise, finding out how Colonel Harland Sanders mixed those eleven herbs and spices to make his world-famous coating for deep-fried chicken would require discovering the undisclosed location of a bank vault somewhere in Louisville, Ky.
Most businesses have confidential information, processes and formulas they would not want competitors to see. When you decide to put your company up for sale, you risk giving strangers — potentially even your competitors — the keys to your vault.
— 2004 Getty Images
In my experience, there are three basic stages at which you’ll need to reveal an increasingly deeper level of information when selling your business:
Level 1: Teaser document
Once you decide to put your company up for sale, your adviser will work with you to create a short description of your business, which disguises your company’s identity but provides enough information to pique a potential acquirer’s interest. Your “teaser,” in M&A parlance, will typically include:
• A basic description of your business (what you sell, to whom).
• A profile of your customers (how many, how often they buy).
• Your basic financials (revenue, EBITDA, historical and projected growth rates).
• An overview of the market opportunity (size of the market, opportunity for growth).
Based on the limited information you reveal in a disguised teaser, your risk of giving away something you’ll regret is limited.
Level 2: The book or online data room
Of all the companies and individuals that receive the teaser document, some will, you hope, request a more detailed description of your business. Your adviser will likely ask the acquirer to sign a non-disclosure agreement in return for access to more information, which is presented in either “the book” or an online data room.
This is when things get tricky.
In addition to revealing the name of your company, you’ll want to provide the potential buyer with enough information about your operations to get him or her excited about making an offer. This info often includes details on your future plans, sales processes and even your new product development ideas.
You’ll often get your best offer from someone close to your business — a competitor, supplier or another company that is adjacent to your business.
Outsiders will now start to understand your special approach and what makes your business unique. They are not under an obligation to make an offer, yet they have access to competitive information. Some companies even make a habit of claiming interest in buying other companies in their industry just so they can get a look at their competitors’ confidential plans.
There are some things you can do at this stage to minimize your exposure:
• Don’t give away the secret recipe. The book (or online data room) needs to include historical financials, future projected financial performance, details on your customers, contracts, leases, and so on. It does not have to provide your deepest secrets for making your product or winning customers. If there is something truly proprietary in the way you make what you sell, leave it out.
• Request that an online data room be created, instead of providing a printed book or a PowerPoint or PDF file that can be easily forwarded. An online data room is simply a password-protected website to which the potential acquirer needs to log on to view files. An online data room provides a greater level of security, visibility and negotiating leverage for you because you can see who has accessed what files and how deep some buyers have gone to understand your business. This provides clues about who is really serious about making an offer and can help you spot individuals who may just be on an information-gathering expedition.
