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Engagement Negotiation

The Importance of an NDA in Selling Your Company

When it comes to selling your company, you need to ensure that your personal and business information remains confidential and does not get into the public domain. If it does, then there are several potential problems with this from staff becoming aware of the business sale as well as competitors finding out too.

Any early business information or listings are often anonymised, similar to this example:

A High-Performance Engineering Firm in the North East - OIRO £1.5 - 2m
This company has been operating in the automotive sector for the last 15 years and has impressive recent growth with a new line in high-performance parts. With a great opportunity for expansion into developing markets and a focus on new product development, this business has great potential for the new owners. Property: No property Location: North East, one factory with offices Staff: 25  Year Established: 1999 Turnover: £2.5m Net Profit: £440k

From this kind of information, it is intentionally difficult to identify the business in question. However, as soon as a potential buyer responds to this information, it’s important that the disclosure process happens in the right manner.

Timing the NDA Request Right

Let’s assume you have an enquiry on your company and it seems serious. They may now be asking for more information, possibly for your pre-prepared Information Memorandum, and this is the time you need to get your NDA ready.

We still recommend you fully profile your potential buyer before you send any further information to them. There’s nothing worse than sending business information ‘blind’ and it’s important that this particular interest is serious enough and has the resources to be able to acquire your business at the valuation you are looking for.

So, there is a transaction needed: you need to swap your Information Memorandum with the interested parties’ signing of an NDA to protect your privacy. And the NDA has to happen first before you release any confidential information.

Make sure that it is returned to you signed and completed to your satisfaction before you disclose any further information as, beyond the Information Memorandum, you may well end up sending full accounts, bank statements, client lists and other confidential information to the more serious buyers.

Two Kinds of NDA

There are two types of NDA which can be used for the purposes of your business sale.

  • One-way NDA: this protects your confidentiality, but has no bearing on the potential purchaser. Therefore, in theory, it is better for you, but then it may cause your buyer to be more cautious about sharing information with you
  • Two-way NDA: this protects both parties’ confidentiality and is mostly the document used for the purpose of business negotiation and sale. Particularly as the detail of an acquisition unfolds it protects both parties

Business Sale NDA Template for You

If you would like to download a FREE two way NDA template, then please contact us, and we will send it by return.

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