How To Maximize Your Business Valuation While Maintaining Confidentiality

As an owner, you naturally want to maximize the value you will receive for your business. The best way to accomplish this is to put the business in front of a wide and aggressive pool of qualified buyers. In doing so, owners maximize the chance that they will get multiple offers for their business simultaneously. The presence of competing offers almost always maximizes negotiating leverage and results in the highest price and best terms.

Recognize that 90% of all of the people who begin the search to buy a business never complete a transaction, so the only way to ensure that a genuine buyer that will close the deal is to be in front of numerous potential suitors.

Understandably, broad exposure is concerning; no owner wants it to be known that they are selling. We have found that by implementing the following steps, you can maximize your business’ value while vastly reducing the risks associated with a breach of confidentiality.

Don’t Tell Employees

While many owners feel guilty about selling and not revealing their intentions to their employees, the resulting process often takes a lot of time and therefore the employees are beset with ambiguity. In a situation where the future seems uncertain, employees may look for what they consider security in the form of another job or productivity may lag because employees are worried about the future.

Unfortunately, rumors about the future and intentions can circulate wildly. Over the years, we have found that far greater damage to the company occurs when employees find out there is a prospective sale on the horizon vs your competitors finding out. After all, competitors are always saying whatever they want.

maximize your business's value while maintaining confidentiality
Over the years, we have found that far greater damage to the company occurs when employees find out there is a prospective sale on the horizon vs competitors finding out.

Do Not Use A Commercial Real Estate Broker

Inherent in real estate marketing is the widespread dissemination of revealing information, for example, yard signs placed in front of your facility, and addresses and photos of buildings posted online. This type of marketing can certainly attract buyers, however at what cost? Having employees, vendors, and customers find out that the business is for sale can be very damaging!

Additionally, real estate professionals often have little to no background analyzing business financial statements or working with lenders that finance business acquisitions. Therefore, generally, they cannot effectively communicate in regards to business valuation or what factors affect how banks are going to determine financing packages.

Make Sure That Prospective Buyers Sign NDAs

If you are going to enter into any form of discussion or send any information, make sure to get a non-disclosure agreement (NDA) in place with the prospective buyer. And ensure that this NDA is sufficiently detailed to address a number of important items. For example:

  • What information is considered confidential?
  • Who is allowed to review confidential information?
  • What will be done with confidential information if the parties do not wish to proceed?
  • What will the repercussions be for violations?
  • What court’s jurisdiction will govern a process?

Every buyer that reviews a Calder client’s information must sign a strict M&A NDA.

Make Sure to Vet Buyers Upfront

Beyond signing a strong NDA, all buyers should be asked at least basic questions, for example:

  • Why are you interested in my business?
  • What is your available level of capital?
  • Do you have prospective investors?
  • How do you plan to finance the purchase?
  • Are you asking owners to finance any part of the deal?
  • Do you plan to actively manage the business or is this a passive investment?
  • What are your plans with respect to key employees or keeping the business in its existing location?

If a buyer cannot provide reasonable answers to these questions, are they really serious? Have they put the appropriate thought and effort into buying a business? Buying and owning a company can sound a lot easier than it actually is.

At Calder, we ask and record the answers to qualifying questions for every interested buyer. We allow our seller clients to view buyers’ answers, if desired, prior to revealing any confidential information. Furthermore, we utilize a background checking service where we can gather additional information on buyers; for example, employment history, criminal offenses, civil judgments, lien history, etc.

maximize your business's value
The presence of competing offers almost always maximizes negotiating leverage and results in the highest price and best terms.

Anonymize Business Information

If you are going to get the best price, it is inherent that a marketplace of offers is created (otherwise, how do you really know you got the best price?). To be successful, business opportunities must often be confidentially but widely marketed to qualified buyers. To do this, a blind overview or teaser is created that anonymously describes the business while not giving away revealing factors such as name, address, or precise service offering. At Calder, we ensure that our clients approve our blind overviews prior to using them to get buyers’ attention. Here are some examples:

Fabrication & Industrial Service Business for Sale

Commercial & Industrial Electrical Contractor for Sale

Keep Close Control Over Who Sees Your Information

If you are working with a business broker or M&A Advisor, ask whether they can allow you to approve all potential buyers. For example, Calder’s clients are able to review the resume or LinkedIn profile of buyers as well as review the answers to qualifying questions before approving buyers. Now, not every seller wants to do this, however, it serves as a hedge against someone that you do not want to get your information from receiving it.

Following these steps can greatly reduce the chance of a confidentiality breach while simultaneously allowing your business to be aggressively marketed to a broad pool of qualified buyers.

Please contact Calder confidentially if you are interested in selling your business.

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Calder Capital, LLC