Protecting your crown jewels
When considering putting your business or company up for sale, it can be a fine balance between providing any potentially interested party with an ‘open book’ and keeping key proprietary information confidential, writes Andrew Tubb, Partner with law firm Birketts LLP.
The Information Memorandum
Marketing materials for any transaction can be instrumental in the sales process. A teaser, or a more formal Information Memorandum (IM) can be invaluable.
Any seller should be well prepared before the sale process starts, and a key part of this is engaging professional advisers at an early stage. In addition to your solicitors and tax and accounting advisers, it can assist if you engage a corporate finance adviser to manage the process, and information flow.
Whilst it does come with incurring additional professional costs at the outset with no guarantee of a successful sale, a well-presented IM can add weight to your discussions with potential acquirers.
An IM should provide potential acquirers with a reasonable amount of information regarding the target in order to gain interest in the transaction and to look to achieve meaningful bids going forwards. It should be informative and put together to showcase your business, emphasising your position in the market.
Along with an executive summary and a business overview, an IM should include the target business’s highlights, financial performance, market, and key customers.
A note on its industry, trading history and principal assets also assists. Up to date financial information should be included, to cover both historic performance and future plans and projections.
Including specific information at this stage relating to the company’s major customers, contracts and pricing can be included, depending on the commercial sensitivity of the business, along with details on business model, management team and growth strategy.
Considering what information you would want to see if you were looking to acquire a business similar to yours may frame what information you disclose at the outset and what key critical information you want to anonymise or redact through the due diligence process.
If following consideration of the IM, there is a prospective purchaser in the mix, maintaining confidentiality is an important issue as you provide further information to the potential acquirer as you move to a full legal and financial due diligence exercise.
Retaining control is key, both from a legal and operational standpoint. A comprehensive confidentiality agreement, duly signed and dated, is a must before any proprietary information is released.
This should impose obligations on the potential acquirer to keep the confidential information secret, not to disclose the confidential information to any other party except as permitted in the agreement, to take all necessary steps to prevent the accidental disclosure, and to return or destroy such confidential information on request.
Penalties for breach would be a claim in damages, but that might not be sufficient depending on the nature of the confidential information or how the breach occurred.
Any seller should ensure they are entitled to a remedy of injunction to prevent further use of such proprietary information, or specific performance to remedy and to deliver up the information following any infringement.
Protecting the crown jewels
Careful and deliberate use of an electronic data room can enable a seller to limit access to certain documents. Using the right tools, it is possible to track a bidder’s usage of the information.
It is also possible to restrict wider sharing of the confidential information. Access rights to enable documents to be viewed, but not to be downloaded or be printed, can be used to protect key confidential information.
The IM is central to exciting interest on the part of potential acquirers, serves as a platform for valuation, and can set the future course of a transaction.
As such, it should be carefully prepared and well thought through with as much key information as possible, maintaining that balance between a comprehensive sales pitch and maintaining confidentiality in the marketplace.
• You can contact Andrew by telephone on +44 1473 299155 or via email: andrew-tubb [at] birketts.co.uk