There are a number of measures that can be taken to mitigate confidentiality risk while exploring a potential sale. Here are seven of the most effective measures.

1 Never overlook the confidentiality letter

Although confidentiality letters are often weak legal commitments (and therefore are at times overlooked) they should be put in place as a statement of intent and of expectation from a buyer and vendor respectively. It is also critical that confidentiality letters are recruitment specific including, for example, employee anti-poaching terms (many standard letters do not include such protections).

2 Discuss confidentiality with buyers’ senior people

We find that discussing concerns and expectations over confidentiality directly with senior people amongst buyer teams is one of the best ways to protect confidentiality. Their personal undertakings will often bind them and their teams to confidentiality far better than a three-page confidentiality letter ever could.

3 Avoid approaching irrelevant buyers

Good examples of irrelevant buyers are those who have insufficient money to acquire (which should be picked up through a balance sheet review and other background research), those preferring organic growth strategies, or those pursuing an acquisition strategy which simply is not relevant to a vendor’s business on account of sector, size or footprint preferences. Avoiding these companies is critical as they can often be the least confidential of all if included in a sale process.

4 Avoid approaching close competitors as potential buyers

Not approaching close competitors as potential buyers is another effective means of protecting confidentiality. However, it is surprising how so many close competitors are approached, and early on in sale processes too, when they can do most damage in how they respond. M&A advisors who run loose, wide auctions for businesses are often responsible for this risky strategy.

5 Stagger information release

Information about a business for sale should be staggered and gradually released in response to buyers’ continuing interest and to the time and money spent by them on assessing the deal. The most commercially sensitive information about a business (for example, customer names linked to margins and terms) should only be released in a final stages of due diligence when a deal is very likely to complete.

6 Anonymise information

Commercially sensitive information can also be derisked by being anonymised. For example, ‘NFI by client’ analysis, which buyers will quite reasonably use to get comfortable on a target’s client concentration risk, should have customer names anonymised. In doing so, vendor risk is reduced while the buyer can complete this part of its due diligence. The names can be released at a later, less risky stage of the sale process.

7 Maintain deal momentum

Even with every measure taken to minimise confidentiality risk, the bottom line is that some risk remains as long as a sale process is in progress. Taking months longer than necessary in exploring and then in completing a sale increases overall confidentiality risk. Accessing the relevant buyers efficiently and discreetly, and project managing their interest to a tight timescale is a key way of reducing confidentiality risk.