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Businesses urged to beware of bogus buyers
Article date: 01/02/2009
Businesses must be alert to the threat of competitors obtaining
commercially sensitive information under the guise of buying the
business, a leading Midlands law firm has warned.
Higgs & Sons' corporate team is warning companies to be vigilant against approaches from other companies who may express an interest in buying the business as a means of obtaining sensitive information.
Nick Taylor, a partner at Higgs, said it is perfectly normal for a buyer to investigate a potential target business, but revealed that sellers should exercise caution in their eagerness to sell up.
He said: "Businesses should be very sure that the buyer is genuine before allowing access to sensitive information. Particularly in the current climate, the seller should be satisfied that the buyer has funding in place and that there is a genuine interest in the acquisition.
"Companies who may be eager to sell should resist the temptation to disclose sensitive information at an early stage.
The due diligence process helps the buyer to establish a full picture of the target business and identify any risks associated with it. During the course of this exercise, the buyer will gather a range of different information about the business in order to better understand it, and as a result of this process the buyer may become privy to a range of sensitive information."
The sensitive information unearthed through due diligence could include price lists, customer lists, employee data or other detailed commercial information. Should the sale of the business complete, the fact that the buyer has become privy to sensitive information about the business is irrelevant. However, problems can arise if the transaction falls through for any reason after the due diligence process has begun. This is a particular concern if the buyer is also a competitor of the seller.
Nick added: "There are a number of ways in which a seller can protect its position in the build up to sale. During the due diligence exercise, the seller should question whether the buyer requires the information requested, and to what level of detail. Careful consideration should be given to the timing of disclosure of particular information and
no information should be released until the buyer has signed a confidentiality agreement.
"This is especially the case when the buyer is yet to have funding in place to complete the transaction. Sellers should be mindful of competitors using the lure of a transaction to 'fish' for information on the business."
For further information on the due diligence process and how you can protect sensitive information in the negotiation stages of a transaction, please contact Nick Taylor at Higgs & Sons on 01384 342127.