It sounds like a catch-22: Sharing information about your business is necessary to engage a buyer, yet doing so puts your company at some risk.
During negotiations and due diligence, potential buyers will be privy to sensitive details about your business, from financial documents to business plans. Depending on how this information is shared, you could end up with a smooth sale or damaged goods. Adding a confidentiality clause to your letter of intent can protect your sale — and your company.
What Is a confidentiality clause?
A confidentiality clause gives sellers the power to specify which information will be available, how it will be gathered, and most importantly, how it will be kept private. The letter of intent itself does not represent a formal commitment on behalf of either the buyer or seller. Generally speaking, it’s a formality that serves as proof of good faith. However, clauses within the LOI — such as a statement defining confidentiality — have the ability to be legally binding. This is why it’s essential to involve professionals such as transaction attorneys and transportation business brokers when drafting any sort of agreement for your limousine or charter and tour business.
What can it do?
Most confidentiality breaches are accidental rather than malicious. Sometimes a well-meaning but inexperienced buyer stops by a business to do some undercover investigation, raising employee suspicions. Interested parties with loose lips may unintentionally set rumors flying, jeopardizing relationships with employees and clients. If competitors believe you are planning to sell your limousine or bus business, they may use the information as leverage to lure away customers and suppliers.
Because business value is based on the current state of the company, any changes that occur due to compromised confidentiality can jeopardize buyer interest in the business. Nervous employees may decide to bolt out of fear, leaving a new buyer with limited staff. Customers used to dealing with the current owner may decide to switch companies. Concern over a sale typically produces more panic than the sale itself.
A confidentiality clause allows a buyer to specify that privacy must be maintained not only during negotiations, but also in the event that the deal falls through.
More steps to protect confidentiality
Because every business is different, every letter of intent — and accompanying confidentiality clause — should be different. An attorney familiar with the transportation business can draw up a document that reflects the unique risks of your industry.
More often than not, confidentiality issues arise when buyer and seller work together directly, resulting in misunderstandings and frustrations. By enlisting an experienced business broker to facilitate a sale, a buffer is created between the two parties. An industry professional can create the distance you need to protect your interests — and your sale.
Spencer Tenney, vice president of The Tenney Group (www.thetenneygroup.com), is a member of the International Business Brokers Association and a Certified Business Intermediary (CBI). The Tenney Group is focused on business sales, acquisitions, business valuations and exit planning exclusively in the transportation industry. Spencer can be reached at (817) 274-0054 or [email protected]