A business is much more than a collection of buildings, accounts receivables, and employees. More appropriately, a business can be thought of as a living, breathing entity. Just like a living thing, a business can take a heavy blow and come out surprisingly unscathed. On the other hand, a seemingly minor hit can sometimes result in irreparable harm.
When selling a business, a confidentiality breach is a blow, no doubt about it. It causes harm to a company and you can’t tell ahead of time how badly the company will be affected. At the worst, a competitor can take important contracts away, and key employees can become frightened and quit. The company can become unsellable overnight, right when the owner wishes to sell.
Thus it is critical in most cases to protect the confidentiality of the business when selling. The business brokerage and the mergers and acquisitions profession is geared toward that mission. And it works, most of the time.
As president of Compass Point Capital, a business brokerage/M&A firm that helps business owners sell their companies, I sold a nice product manufacturing company in Chico, California, last year. It took about six months for the entire process of selling the company, including advertising, showing the company to multiple buyers, financing, due diligence, and closing. The new owner and old owner had an employee barbecue to announce the sale a week before the close (the close was imminent at that point). Except for the bookkeeper, no one knew about the sale. The process worked. The new owner was able to announce his intentions to the employees and help calm their fears.
We did have a close call because we had taken the new buyer to the business owner’s current bank for financing. About a week later, the owner’s bank rep walked into the business and said loudly, “Hey, Jim, I hear you are selling the place.” Luckily, only the bookkeeper heard, and she already knew about the sale because she was helping me gather the financials.
Recently, a company we sold only got about halfway through the process before the owner told his employees. He just couldn’t stop himself, and I can’t really blame him because I did the same thing when I sold my tech company years ago. But I wouldn’t do it again. In his case it turned out fine, but one employee did hold his feet to the fire for more money.