Strategic Information Release:
Timing is Everything

Welcome back to our blog series “I Received an Offer, What Do I Do? A Blog Series on M&A Do’s and Don’ts.” In our previous posts, we’ve covered various aspects of navigating the complexities of mergers and acquisitions (M&A), including: “The Offer: When To Seek a Trusted Advisor” and “Demystifying M&A Deal Points: Understanding the Essentials.”

In this post, we’ll explore the crucial role of timing when it comes to the strategic release of information during M&A negotiations, specifically information disclosure during acquisitions and how SEA’s expert insights can help maintain control and maximize leverage throughout the negotiation process.

Regardless of the trends in lower middle market M&A, information is power and the blueprint for success begins long before entrepreneurs are ready to sell. The details you share, the financials you disclose, and the proprietary insights you unveil can significantly impact the perceived value of your business and the leverage you hold at the negotiation table. Timing the release of this information is an art form that, when mastered, can maximize your outcomes and ensure a favorable deal.
 

Understanding the Role of Information in M&A

Strategic information in the context of M&A encompasses a wide range of elements, including financial statements, client lists, proprietary technology, and other critical business insights. Controlling the flow of this information is crucial, as premature or delayed release can have meaningful consequences.

At Strategic Exit Advisors (SEA), we follow a unique two-step process that adds a 30-minute introductory call with the owner before sharing the full Confidential Information Memorandum (CIM). This approach allows us to control the narrative and provide context, rather than letting the buyer dictate the terms based solely on numbers.

The timing of when companies release financial information, as well as the context provided around that information, can significantly impact how that data is interpreted by buyers and investors. If raw numbers are released without proper framing, buyers can spin the narrative in a way that benefits them. By controlling both the timing and the surrounding narrative when disclosing financial metrics, companies can shape how their performance is perceived.
 

The Art of Timing Information Release

M&A deals involve several stages where the strategic release of information can profoundly influence buyer interest and perceived value. These stages include initial contact, marketing phase, management meetings, signed Letters of Intent (LOIs), due diligence, and final negotiations.

There are several early pitfalls a business owner can make when they are approached directly by a buyer. The deck is already stacked against them because there is no competition, so even the slightest misstep can take a below market offer and make it even worse. At SEA, we say that you’re always in a process. The question is whether you’re in control of the process or not.

When business owners are approached directly, they are skipping the initial contact, marketing and management meeting phases and are going directly to LOI and due diligence. This means that information needs to be shared quickly and at a great level of detail; however, business owners still need to control the release of this information and provide the appropriate context.
 

Top Three Recommendations When Engaging Directly:

  1. Don’t share financial statements without first providing context for what the buyer is going to see. Provide the narrative of why revenue has grown or decreased or why profitability has changed.
  2. Don’t share financial statements until someone with an expertise in this industry has evaluated your financials. Multiples in the lower middle market are not based on net income. They are based on recast or adjusted EBITDA. Don’t share numbers that don’t have adjusted EBITDA at the bottom.
  3. Don’t share customer names. Blind the customer data until there is a signed LOI. Provide revenue by customer type, geography, etc. but don’t give out your customer names until diligence.

Exercising emotional intelligence by carefully considering what information to disclose, when, and how – as illustrated by providing context around customer concentration – rather than an emotionally-driven knee-jerk disclosure of concerning data, is crucial for controlling the narrative and maximizing value in a deal situation.

While we’ve provided three recommendations for direct engagement, our advice is not to engage directly. Engage an investment bank. We at SEA know what the market is willing to pay for your business and know how to handle the release of information. By working with SEA, you can expect that we will more than pay for our fee through a higher purchase price and better deal structure.
 

Balancing Transparency and Leverage

While strategic information release is critical, it’s essential to strike a balance between necessary transparency and maintaining leverage over the buyer. Over-disclosure can leave you vulnerable, while under-disclosure can breed distrust and stall negotiations.

Entrepreneurs must gauge what to disclose and when, considering the potential impacts on buyer interest, perceived value, and their ability to negotiate favorable terms. This delicate balancing act requires careful consideration and often benefits from the guidance of experienced M&A advisors.
 

Case Studies: Addressing Confidentiality and Customer Concentration Concerns

Case Study #1: Confidentiality Preserves Value in Niche Industry Sale

This involved a client operating in a highly niche industry where confidentiality was a major concern. How did they approach disclosing sensitive information during the marketing process? They kept the name of the business completely anonymous until management meetings and letters of intent were due. Confidentiality was maintained to the broader market, with the company’s identity only shared with a handful of prospective buyers. This approach resulted in a great financial outcome and partner fit, while also preserving complete confidentiality throughout – a must, as premature disclosure could have negatively impacted the company’s performance.

Case Study #2: Strategic Disclosure Overcomes Customer Concentration Hurdle

This client had over 80% concentration with a single customer – a fact withheld from buyers until SEA facilitated a 30-minute call between the client and prospective buyers. On this call, the client provided critical context – that the “single customer” was actually 15 distinct relationships within one organization. With this clarifying narrative, SEA then shared the full supporting materials. This strategic disclosure of concerning data, coupled with proper context, allowed the client to achieve a great outcome and maximize cash at close.

 

Expert Insights and Strategies

At SEA, our team of M&A experts and Executives in Residence have honed the art of strategic information release through years of experience and successful deals. We understand the nuances of optimal timing and the potential pitfalls of ill-timed disclosures.

Our advice to entrepreneurs is to prepare a well-thought-out information release timeline, considering the potential impacts at each stage of the M&A process. Work closely with your M&A advisors to strategize and execute this plan, leveraging their expertise and insights.

In the intricate dance of M&A negotiations, timing the release of strategic information is a critical factor that can significantly impact the success of a deal. By mastering this aspect, you can maintain control over the narrative, pique buyer interest, and maximize your leverage during negotiations.

At Strategic Exit Advisors, we pride ourselves on our ability to guide clients through this delicate process, ensuring that the right information is shared at the right time for optimal outcomes. If you’re considering an M&A transaction, reach out to us for personalized advice and support on your journey.

In our next installment, we’ll explore another crucial aspect of M&A success: “SubNegotiations Unveiled: Beyond the Bottom Line.”
 

Key Takeaways

Timing the release of strategic information is an art form that can significantly impact the success of your M&A transaction. Keep these key takeaways in mind:

  • Information is power, and controlling its flow is crucial for maintaining leverage during negotiations.
  • Work closely with experienced M&A advisors to strategize and execute a well-planned information release timeline.
  • Balance transparency with preserving your bargaining power by avoiding over-disclosure or under-disclosure.
  • Provide context and frame your narrative when disclosing sensitive information like financials or customer concentration.
  • Carefully time the release of key details at various stages, from initial contact to final negotiations, to pique buyer interest and shape perceptions.

What’s the Strategic Exit Advisors Difference?

At Strategic Exit Advisors, our team of experts is well-versed in helping entrepreneurs overcome challenges and make informed, valuable decisions to achieve their best exit. We are dedicated to aligning with your unique transition goals and meticulously tailoring our process to achieve clearly defined, optimal outcomes. Reach out to us anytime at (215) 489-8881 or schedule a conversation.

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