Many of our deals involve buyers and sellers who live in the same community and who will continue to live in the same community after the transaction is complete. The question that is often asked is how to move from the casual chat about a possible sale to getting the relevant information for moving forward to valuation and business planning for finding finance. This is where I use the Mutual Confidentiality Agreement, which inevitably meets with objections but which shifts the deal from casual to formal – this is a necessary shift in order to establish whether the seller is really ready to sell and the buyer could consider buying this particular business.
First I’ll cover the main objection: usually both sides express extreme disbelief that anyone in the community including themselves will actually abide by the confidentiality clauses or even enforce them. I am aware that within communities there is tremendous pressure on committees and trustees to talk about deals when there is very little to say except “We are investigating the possibility of acquisition”. And this is where the community need to be reminded by the buyer that the community has delegated the operations of their community organisation to the board or committee or trustees and the community should let abide by that delegation. To share bits of information is not only inappropriate but unhelpful to the organisation doing the acquisition and to the community it represents and serves.
But the second aspect of the Mutual Confidentiality Agreement that I particularly value is that is says to the seller that this organisation (not an individual from the organisation) is formally engaging with the seller (and their organisation if they have one) to exchange information about valuing the business as the first step to considering buying it. This is different from an individual asking to see the business accounts. At this point the seller often recognises that the buyer is serious about engaging in this early stage of acquisition and that the buyer has professional advice in order to progress the transaction.
Real sellers step up to engage when this shift from casual to formal process occurs. Sellers who think they will get a quick deal at the price they set usually walk away at this stage or quite soon thereafter. The sifting process of “deal” or “no deal” begins with a meeting around a Mutual Confidentiality Agreement and the AB4G team is available to help with this meeting.