When you start talking to a buyer, you're usually doing it alongside running the business. Your team and your customers don't know, and you'd like to keep it that way until there's something definite to say. If a buyer pulls out after a few weeks, you'd rather nobody had heard there was one.
Keeping a sale quiet takes more than a signed agreement. This guide covers what a confidentiality agreement should say and how to share information in stages. It also covers the data protection rules for staff and customer records, and what to do if word gets out.
Who you're keeping it from, and why
Government business guidance warns that knowing a business is for sale could upset its customers and employees, and that competitors may use a sale to find out its trade secrets. In practice the risks look like this.
- A key manager starts looking for another job before you can tell them what the sale means for them.
- A large customer hedges by moving some work elsewhere.
- A supplier tightens its credit terms.
- A competitor tells your customers you're on your way out.
There's a second risk, which is the buyer itself. If the deal doesn't happen, it walks away knowing a great deal about your business. That's why what you share, and when, matters as much as the paperwork.
The confidentiality agreement
A confidentiality agreement, often called a non-disclosure agreement or NDA, is a contract. Ask every buyer to sign one before you share anything that identifies your business. Your solicitor or adviser can provide one. If the buyer sends its own, read it carefully. The Intellectual Property Office's guidance on NDAs warns that another party's form may serve their interests better than yours. A good one for a business sale covers these points.
- What's confidential. Everything you share in writing or in person, and the fact that talks are happening at all.
- What it can be used for. Only deciding whether to buy the business, and negotiating the deal.
- Who else can see it. The buyer's advisers, lenders and named staff, each bound by the same terms, with the buyer responsible for them.
- The exceptions. Usually information that's already public, and anything the buyer is required by law to disclose.
- Return or destruction. If talks end, the buyer returns or destroys what it has and confirms in writing that it's done so.
- How long it lasts. The Intellectual Property Office says it's common to see confidentiality limited to three or five years, after which the other side can use the information. Think about what would still matter then, such as your customer list.
- What happens if it's broken. Usually a right to ask a court for an injunction to stop further disclosure, as well as damages.
Two practical points come from the same guidance. Make sure someone with authority signs it for the buyer, such as a director. And because a one-way agreement may need to be signed as a deed to be enforceable, ask your solicitor how it should be signed.
Non-solicitation and no-approach clauses
The agreement should also stop the buyer using the talks to poach your people or your customers. A non-solicitation clause stops it approaching your staff and customers for a set period, whether or not the deal goes ahead. A no-approach clause goes further, and says the buyer won't contact your staff, customers, suppliers or landlord about the business without your permission. All contact goes through you or your adviser.
Keep these restrictions to a sensible length, and to the people and businesses the buyer learns about through the sale. Restrictions that go further than needed may not be enforceable. A buyer may ask to exclude general job adverts that one of your staff happens to answer, which is usually reasonable. The promises you'll give the buyer in the sale agreement itself are a different thing, covered in our guide to restrictive covenants.
Share in stages
An agreement only helps after something has gone wrong. Most of the protection comes from sharing in stages, so each buyer sees only what it needs at that point. The usual order is an anonymous teaser, then the information memorandum once the agreement is signed, then the detail in due diligence once heads of terms are agreed.
Keep the most sensitive things until last. Customer names and contract terms, individual salaries and your pricing can usually wait until the buyer has committed to a price and is close to signing.
A few habits help along the way.
- Use a code name for the sale in emails, files and diary entries.
- Keep the circle small inside the business, and put anyone you do tell under a confidentiality letter.
- Meet buyers away from the premises, or outside working hours.
- Use an online data room where you control who sees each folder and can see what's been opened.
- Keep a record of what each buyer has been given and when.
Don't assume every conversation is covered. The Intellectual Property Office warns against assuming that talks with advisers are automatically confidential. If you bring in anyone else to help, such as a valuer or a consultant, ask them to agree to confidentiality in writing too.
When the buyer is a competitor
A competitor can be the best buyer for a business, and the riskiest one to talk to. As well as the commercial risk, competition law limits what competing businesses can share. GOV.UK says you cannot share information with other businesses that might reduce competition between you, giving examples such as prices, suppliers and customers, and the markets you sell to.
So with a competitor, share sensitive figures in summary or anonymised form for as long as you can. Where the buyer needs the detail, one answer is a clean team. Only a small group of named people, often including the buyer's outside advisers, sees the detail, on a strict need to know basis. Anything passed on to the rest of the buyer's business is summarised or anonymised first. Your solicitor should be involved in setting it up.
Data protection during a sale
Your staff records and customer lists are personal data, and data protection law applies during a sale as it does at any other time. The Information Commissioner's Office covers mergers and acquisitions in its data sharing code. It says you must consider data sharing as part of your due diligence. That includes establishing what data you're transferring, the purposes it was first collected for and your lawful basis for sharing it, and documenting what you share. It also asks you to consider when and how to tell the people concerned. The ICO says this guidance is under review following the Data (Use and Access) Act, so check for updates.
In practice that means sharing the least personal data each stage needs. Early on, a buyer can understand your team from roles and pay bands, without names. Take care in a small team, because the ICO points out that information can identify someone indirectly, and a job title alone may be enough. Named staff records usually come later in due diligence.
In an asset sale, some sharing is required. Under the TUPE rules your company must give the buyer information about the staff who are transferring at least 28 days before the transfer. Our guide to TUPE when you sell a business explains what that covers.
Telling people at the right time
Confidentiality has a natural end. A buyer will usually want to meet your key managers before completion, so plan to tell them first, in person, under a confidentiality letter. Business Gateway notes that in many cases sellers don't tell employees until the sale is agreed, unless key staff need to know for practical reasons. Everyone else then hears on completion day or soon after, ideally with the buyer in the room.
In an asset sale the TUPE rules require each employer to inform staff representatives before the transfer, and to consult them about any changes it plans. That means some staff will know before completion, so plan the timing early.
If word gets out
Rumours can start anyway, from a visit someone noticed or a remark at a supplier. Decide in advance what you'll say, and keep it short and true. If nothing has been agreed, you can say that you're thinking about the future of the business and nothing has been decided. Add that if anything changes, people will hear it from you first. Don't deny talks that are happening. If the sale goes ahead, you'll need your team to believe what you tell them next.
If a buyer leaked the news, tell your solicitor and your adviser straight away. The agreement may give you a claim, but the first priority is usually talking to the people who heard it, before the rumour does more damage than the facts would.