It pays, inevitably and invariably, to be forthright in presentation of information about your company to a prospective buyer. Forthright does not mean that you must necessarily share all levels of detail. There may be details that you need to withhold in the interest of protecting confidentiality. For those issues, you simply need to say, “We don’t wish to provide that information now.”
With all information that you are willing to share, be scrupulously honest. When we take any engagement, we warn prospective clients that if they aren’t comfortable with being forthright, they won’t like us. We believe that and live by it–and we are absolutely comfortable that such belief integrates perfectly with a clear profit motive. Superb deals always come from a foundation of truth. Only the most secure buyer will have the courage to push pricing to the maximum. Giving truth allows buyers to be bold.
Also, bad news can be far more effectively dealt with in the earlier stages of discussions. To pretend that a problem doesn’t exist is a foolhardy deception. Problems are far less important or dangerous when full and fair disclosure is made up front, in a forthright manner. Often the buyer will have no adverse response to the issue whatsoever. In many cases, the buyer will see the problem or weakness as an opportunity for substantive improvement. Particularly in areas where the correction seems relatively easy, the buyer may actually see potential improvement as low-hanging fruit, or fast and easy money to be made post-closing.
Several years ago we were representing an outstanding equipment manufacturer in sale. The company had a technically superior product and their growth had been strong and steady, despite the absence of any sales force whatsoever. When prospective buyers asked about the company’s selling process and people, they explained that virtually all of their growth had been through a constant stream of customers finding them. Unlike our client, competitors in their industry had smooth and polished sales mechanisms to fuel growth. With every buyer, our client was modest, apologetic, and even somewhat embarrassed when the discussion turned to the topic of sales systems. Buyers appreciated such openness about the weakness, and saw opportunity in the solution. Virtually every suitor for the company walked away from the client’s shy discussion of this topic with a definite increase in appetite. We sold the company for a superb price.
Buyers of companies control substantial amounts of cash and are generally highly responsible and bright people. (A fool and his money are…a rare combination.) If sale is being considered because of some serious problem pending, the buyer is very likely to ask the right question to unearth the problem.
Furthermore, even if a buyer doesn’t unearth the problem in the natural course of events, if it’s important, it should be disclosed. Lack of disclosure regarding a material problem will inevitably violate some representation or warranty, which will be required in the purchase agreement before the deal is finalized.
If the purchase agreement doesn’t explicitly seek information on the specific matter itself, it will, at a minimum, require the seller’s representation that he has fairly disclosed any material, potentially adverse matters pending. If you, as a seller, expect to keep the proceeds of the sale, you need to have come by them honestly.