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The most fundamental difference between a privately held business and a public company is that a private business is not publically traded. Since private businesses do not have public shareholders, they are not required to release their financial information to the public. Due to this confidentiality, when selling a private business, the M&A process must be executed with special care in order to protect privacy.
While many of the M&A techniques for selling private businesses are the same as those used for public businesses, business owners should pay attention to a few specific elements that will assist them in selling their private business successfully.
Since privately held businesses are not publically traded, their worth cannot be defined by market prices for valuation. Other valuation models should be used to determine the value of a privately owned business. Most business owners find it beneficial to seek out professional valuators in order to find the true value of their company, since an expert business appraiser has various valuation metrics at their disposal.
Marketing the Business for Sale
A fundamental part of selling a private business is announcing that the business is for sale, but this must be done without revealing any information that may give away its identity. An M&A intermediary will typically list only basic information that will attract potential buyers without breaching confidentiality.
Perhaps the most important element of selling a private business is to ensure confidentiality between parties at all steps of the M&A process. Once initial contact has been made with a potential target, the seller’s agent will request that the buyer sign a confidentiality/non-disclosure agreement before the seller will reveal any information. This will protect the process from being exposed to anyone outside of the deal. Without a confidentiality agreement, private information may be leaked, potentially resulting in damage to the client company. It is also important for potential buyers to be barred from utilizing any of the information that they discover for outside purposes other than disclosure to their legal and accounting experts who are bound to confidentiality by their Codes of Ethics.
It is important to note that confidentiality agreements can only protect businesses to a certain extent. Damages may still outweigh the monetary reimbursements that the other side must pay if confidential information is leaked. Sellers should be sure that each potential buyer possesses a strong, reputable background before revealing any sensitive information.
One way that a seller can combat the fear of a confidentiality breach is by hiring an M&A intermediary. This M&A professional will have a list of qualified buyers who have already been vetted to whom they can advise the business is for sale. At George & Company, we possess a number of exclusive lists in order to properly find the correct buyer for your company. Please contact us in complete confidence and we will assist any of your needs for selling a private business.