Insights

How to keep your information confidential and not lose your employees when you bring your company for sale

No matter how the sale of your company comes to fruition, there will be a point where a buyer will demand to know things that are confidential and to meet your stakeholders, whether they be employees, customers, or suppliers. Protecting against theft of your intellectual property, your data, and your relationships, can make or break your process.

Before you share any confidential information, particularly commercially sensitive or financial information, make sure that your board of directors has approved it, and that you have a non-disclosure and non-solicitation agreement in place with the buyer (and any potential contractual counterparties, however broadly defined). The NDA should specify what information is being shared, how it is shared, with whom it may be shared, what happens when you no longer wish to share that information, what happens in the breach, and more.

Similarly, sellers should try (but may not always be able to) to get a non-solicitation covenant from buyers that they will not seek to hire their employees or contract with, or even contact their customers or suppliers. Much blood can be shed in negotiating this provision, but do the best you can.

Once an NDA and non-solicit is in place, the due diligence process will begin in earnest, and buyers will not be shy in asking for every piece of data that exists and more that doesn’t. Sellers should be judicious in responding to these requests. First, you have a business to run, and you should not be in the business of furnishing the buyer with information more than it needs. Second, there may be reasons to provide information in a staggered fashion, and not always making available to buyer’s entire deal team by posting in a virtual data room.

Each piece of information should be reviewed by counsel prior to posting to ensure that you have the right to share it, that attorney-client privilege is not waived, that damages will not be triggered to a third party, and that intellectual property is protected (e.g, do you need to file a provisional patent application before sharing an invention?).

Consider how you share information. While cloud-based encrypted data rooms are ubiquitous, and Google Drive has made them free, decide whether you will permission buyer’s entire deal team or only limited persons, whether you will grant download and print privileges, or restrict to viewing only, and be extra careful of forwarding information physically or electronically, as the sharing should be recorded and not published to whoever buyer wants to forward it to.

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