Why Do We Bring a Company to Market Blindly?

Business owner sellers are sometimes surprised when we tell them the first draft of our Confidential Information Memorandum (CIM) for their company will be shared blindly with a code name (Project Viper, Project Delta, etc). For our sell-side clients, we go to market broadly and blindly, only sharing the actual company name with a select handful of top finalist buyers who get intro meetings with the seller. We do this for several reasons that benefit both the buyer and seller.

BENEFITS TO SELLER

1. The company gets to control the narrative. It’s never good for employees, customers, and suppliers to hear from the market that the company is for sale. Employees wonder if they’ll still have a job, and customers are concerned about the buyer's reputation and any changes they will see in quality, responsiveness, etc. By keeping the CIM blind, we ensure that only a few groups will know who the company is. This limits the pool of people who can leak information. Even with NDAs in place, the simple rule of percentages will tell you that you have a better chance at confidentiality if only 5-7 people are aware the company is for sale versus 40-50.
2. Going blind on the CIM allows us to share more information than we might share if it was a transparent CIM as we know market competitors are reviewing the information but they don’t know who it is. We can talk about some of the special value drivers of the business without them knowing who in the market has those attributes. We want to provide enough information to decide on their interest in the business, without shouting from the rooftops, “Hey everyone, John Doe Inc. is for sale.”
3. It allows us to head off inappropriate assumptions about the business. Often if we disclose the company name early on, a buyer can go to the website and make their assumptions about the company. In several cases, we’ve represented companies that have either an outdated, stagnant website or a website that doesn’t truly represent their operation and capabilities. Sometimes, we’ve looked at a website, thinking it’s a $5M revenue business when it’s a $20M revenue business with a terrible website. We want to help put the company’s best foot forward and can do this with a comprehensive, yet blind CIM that broadly highlights the strengths and weaknesses of the company.

BENEFITS TO BUYER

1. If you are the ultimate buyer of “Project Viper,” you have the confidence knowing transparent information wasn’t blasted out to 20-30 (or more) of your future competitors who received a transparent CIM and know exactly how the business operates. You have the knowledge that confidential information was tightly held and not many others in your industry were privy to transparent data about the business you just acquired.
2. When talking with several private equity groups over the years, they iterated that blind, yet detailed CIMs are much more helpful to their review than a high-level, transparent CIM. They prefer more detail vs less knowing that if they check enough boxes and confirm a fit, they will eventually know the name of the business with a short list of other top groups.

While there are case-by-case scenarios where going to market transparently may be a valuable approach (i.e. fire sale with a time crunch), BAMA believes that a blind approach offers sellers benefits and an extra layer of security that outweighs the risks. If you’re wondering more about what a process looks like and how long it takes to go from blind CIM to closed, reach out to our office, we’d love to talk timelines and process together.

Business Acquisition & Merger Associates (www.buysellyourbusiness.com), a Charlotte, NC advisory firm, assists business owners in growth recapitalizations, business transfers to financial or strategic buyers, and management buyouts. BAMA also helps companies grow by providing buy-side sourcing services that identify potential add-on acquisitions to expand geographic footprint or add strategic products and capabilities.