Almost every business, no matter what sector it operates in, will have built up value in its know-how and customer contacts, amongst other things.
When the owners of a business are contemplating a sale, whether instigated by the sellers themselves or as a result of receiving an unsolicited expression of interest from a prospective purchaser, it is imperative that a non-disclosure agreement (often referred to as an “NDA”) is put in place very early on in the process.
A properly drafted NDA ensures that any information that is released to a prospective purchaser must be kept confidential, and can only be used by the recipient in contemplation of the proposed acquisition of the target business. The NDA should also require the fact that the parties are discussing a potential deal to be kept secret. Furthermore, the NDA may include restrictive covenants in favour of the target company, to prohibit the prospective purchaser from poaching any of the target’s employees for a stipulated period – this is particularly important if the third party that has expressed an interest in buying the target business is an existing competitor that already operates in the same sector.
A credible prospective purchaser should have no issue with the concept of an NDA. Alarm bells should ring if that’s not the case – if the third party has requested information about the target business but is not prepared to agree to hold that information strictly confidential, is the interest merely just a “fishing expedition”? This should be considered by the sellers particularly when the prospective buyer already operates in the same sector.
Putting in place a strong NDA is only the start of the process from the sellers’ perspective. Even when the NDA has been signed, it’s vital to manage the release of information – the most commercially sensitive information should only be released when it’s clear that the buyer’s interest is serious.
The corporate finance team at Lupton Fawcett have extensive experience of all aspects of corporate transactions (including NDAs), having acted for both buyers and sellers on all types of deals. Feel free to get in touch with Daniel McCormack for a chat.
Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.