How To Negotiate Getting Acquired By A Large Competitor Without Disclosing Too Much Sensitive Information

FastSpring

Estimated read time: 1 minute, 55 seconds

How can one negotiate getting acquired, but not disclose sensitive information?

This is a tough one.

I’ve been involved in a number of acquisitions involving software – Sanity Software by Broderbund, GoToMyPC by Citrix, and Picasa by Google. I’ve also been involved in a number of potential acquisitions that did not pan out.

One step is to get a non-disclosure agreement in place. However, that only has so much value. At the end of the day, an NDA is just a piece of paper, and one that is difficult to enforce, especially since it’s so hard to prove that someone used the information you provided to perform such and such. Not to mention the cost of attempting to enforce.

Many companies or individuals will pose as potential acquirers to get you excited and to then extract confidential information from you so as to empower their own pursuits. How does one disclose enough information to enable the potential acquirer to make an informed decision without disclosing so much that they’ve further enabled a competitor? There are other tactics as well, but really it comes down to a balancing act. Another tactic is to get a letter of intent (LOI) in place before disclosing more information. Typically a LOI is not binding so it is only so effective, but it requires a significant time investment by the potential acquirer and helps you become more comfortable with the situation and with the potential deal, or not. Not, meaning you work on an LOI only to find out you would never sell for their price/terms anyway, so the problem is solved.

But in terms of the balancing act, try to minimize the confidential information as much as you possibly can but still provide some decent information for the potential acquirer to do some evaluating of the opportunity. At the same time, don’t be paranoid. If you are asked for example how much revenue you generate, ask yourself if that’s really information that harms you to have known to this person. It may well not be harmful, yet it’s essential information for a potential acquirer. Or give ranges; rather than saying for example sales of $750K, say more than $500K, less than $2M, or something you’re more comfortable sharing that still has some value to the potential acquirer.

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