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Can You Sell a Business While Still Keeping it Secret?

Owners selling a business face two competing demands: the need to market the business to potential buyers via a compelling story and the need to protect sensitive data about the business from falling into the wrong hands. Key to this is developing a short list when you put your business is on the market. But how many names should you include? That depends on how quickly you want to sell, how sensitive your proprietary information is, and similar factors. Here’s a rough sketch of the options you have for selling your business while keeping the sale under wraps:

A Proprietary Deal With One Potential Buyer
There might be one very eager buyer. Or you might conclude that there’s only one natural choice. Acquirers prefer this because it creates a favorable negotiating climate for them. They can use this lack of competition to their advantage. Called a proprietary deal or prop deal, this option greatly reduces the chance that a sale will leak. It also makes it possible to negotiate and prepare without the assistance of intermediaries.

However, it can take much longer to close because the buyer knows they’re not competing with anyone else. Moreover, this lack of a competitive environment also means that the buyer can skew the deal terms heavily in their favor. If you don’t have a lawyer or other intermediary in your corner analyzing the fine print, you might not even realize this has happened.

A Small Group of Buyers
A slightly more favorable option is to build a short list of a dozen or fewer potential buyers who know you and your company. The acquirers already value what you offer, potentially accelerating the sale process. You can also create a more competitive deal landscape that can produce favorable deal terms and a better final sale price.

The downside is that competitors may use this as a fishing expedition to access proprietary data. Negotiating with peers within the industry also greatly increases the chances that the sale will leak to third parties.

A Large Market Debut
A third approach is to make a large market debut, trying to reach 100 or more potential buyers. You’ll certainly build an efficient market and a competitive bidding landscape. You’ll likely get a higher price and better deal terms. The time to closing may also be shorter. But a large market debut can be expensive. It’s difficult to protect confidentiality and even more difficult to assess which buyers are serious.

If you opt for this route, you’ll need to have a strategy for reducing the list down to a few dozen buyers. One option is to send an anonymous sheet detailing the business. Interested buyers can then sign an NDA to get more details. Those who sign an NDA and are still interested can schedule a call or meeting. This allows you to steadily narrow down your options until a single buyer signs a letter of intent.