Do I need to get signed NDAs when preparing to sell my business?

Rock, I am thinking about selling my business. I’ve always done everything with a gentleman’s agreement. However, if buyers are going to be looking into the private areas of my business, there should be consequences if they reveal something confidential. Should I ask potential buyers to sign a non-disclosure agreement? How do I do that when I pride myself on being a handshake guy?

You’re right to think about the benefits of having a prospective buyer sign a non-disclosure agreement. It may feel uncomfortable to ask someone to sign an NDA if you’ve always operated by handshake, but they are a regular part of the buy-sell process. Experienced buyers expect it.

A professionally-prepared and reviewed NDA is just one of many documents you’ll want in your toolkit to protect yourself when selling your business.

I am not an attorney, and I’m not giving you legal advice. However, I have participated in many deals as a buyer, seller, and advisor. Here is what I see from my experience:

• • A written agreement that has the intent of being legally binding is usually better than a verbal agreement — or no agreement at all.
  • Test a buyer’s willingness to sign a non-disclosure agreement during the discussion phase. You can often flush out buyers who aren’t serious or on a fishing expedition simply by mentioning that you require an NDA.
  • Be sure the right person with the proper level of authority — and who represents the actual entity — is the one signing.
  • Have your attorney prepare and review all paperwork. NDAs are not a place to save money or cut corners.
  • Make your attorney aware of proprietary information, trade secrets, or patents that require confidentiality.
  • Have your team vet the prospective buyer before you disclose anything. You don’t want tire kickers, unqualified buyers, or business spies mucking around inside your business, even if they do sign an NDA.
  • Anyone inspecting your business should be explicitly described in the NDA. If not, ask your attorney if an agreement should be drafted for that person. Even if a buyer says someone’s “good,” it doesn’t mean they’re covered.
  • Reveal confidential information only when necessary, to the proper people, at the appropriate time, and in a secure place, whether online or in person. Your advisors will guide you on this.
  • Get all paperwork in order before presenting confidential information. Try not to submit documents with chaotic or conflicting information. Everything should support the outcome and not add confusion or doubt.
  • Keep copies of all signed paperwork. Make a note when a new version replaces a previous one. Your attorney should review all versions, including red lines. A few words here or there — added or left out — can make a material difference in a contract.
  • Ask your advisor and attorney if you should get signed agreements from employees in the inner circle during the sale.
  • Ask your attorney which protection is best for the consultants and professionals you hire to represent you. Experienced providers will typically bring up the subject first and ask for the security and assurance of a signed agreement. The experts on your selling team vary for each situation. You may be working with some or all of these people: broker, appraiser or valuation expert, CPA, commercial real estate specialist, tax attorney, contract law expert, estate attorney, financial planner, family counselor, turnaround specialist, executive search firm, marketing expert, researcher, personal banker, used equipment dealer, leasing agent, agents representing non-working family members, and others. Your attorney can guide you in how to structure these confidentiality agreements.
  • Although a signed NDA is what we’re discussing, don’t forget to check your gut on anyone who will have access to confidential information. Listen to your hunches and intuition if someone seems untrustworthy. Ask providers directly if they have conflicting interests that affect the valuation or outcome of the sale. Read everything, do your research, and ask providers outright if there’s anything you should be aware of. Be informed!
  • I’ll repeat: Never sign a binding agreement or any legal paperwork without having your own attorney review it.
    Again, I’m not a legal expert, but I want to reiterate that the place to start is with an expert who is looking out for your interests. Your attorney can guide or refer you.

Ask your advisor if you are taking all the proper steps to protect your interests. It is better to be too careful than too trusting regarding non-disclosure agreements.

My team has prepared a guide, Demystifying M&A Jargon, that will help you understand NDAs and other terminology used in mergers and acquisitions.

In our work with clients, LaManna Consulting Group will not shy away from addressing the issue of an NDA. We strive for an atmosphere of confidentiality, transparency, and trust.

Thinking about selling your business and wondering how NDAs apply to your unique situation? Please contact us. We have helped businesses of all types in the graphic arts industry confidently take the next step.