An owner of a privately held company received a call from a much larger public company inquiring if he would consider a sale. The owner replied by saying he might consider it. The owner was honored that such a large company would be interested in his company. They agreed to meet at the owner's office where they discussed a potential sale. The owner provided financial statements and other confidential information. A few weeks later the buyer returned with a Letter of Intent to purchase the company, which the owner accepted.

Over the next few months the buyer did its due diligence. During this time, whether by accident or on purpose, the fact of an impending sale leaked out. The company lost customers and employees resulting in lost revenue and profits. A couple of months later the buyer returned with a revised Letter of Intent with a much lower price. Although he barely covered his debts and had nothing to show for his life's hard work, the owner had little choice but to accept the revised offer.

Could this have been avoided? Yes! A signed confidentiality agreement would have prevented the potential buyer from leaking their intentions or at least provided a means to bring legal action to recover the difference. The Letter of Intent should have contained a clause that the acquisition must be completed in a specified time, generally 90 days.

This owner lost several million dollars. Had he retained an experienced advisor, it could have been prevented. This is not to say that all buyers, or even a few, operate this way. This was an extreme case. The point being that an experienced advisor will be able to assist you throughout the acquisition process and will represent your interests.

Most company owners only sell a business once in their lifetime. Selling a midsize company can be a complicated process with many questions and options that need to be addressed. *

Why use an investment bank?