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"Disclosure of material information from a seller to a buyer is dilemma in the truest sense of the word."

A buyer needs as much information about the business as possible to make an informed decision and a commitment.

A seller needs as much commitment as possible from the buyer before disclosing critical information, trade secrets, and processes.

A buyer reviewing a business for sale

The predictability of this conflict occurring is comparable to the precision of the naval master clock!

It is a true dilemma indeed and creates a natural opposition between seller and buyer.

A lack of a clear pathway to address this issue is one of the main reasons a great sale and outcome for both will not be achieved. When expectations about due process are set from the beginning, it makes for a much smoother journey.

This is how we like to handle the process of disclosure, in a way balanced and fair for both business sellers and buyers. We think a strategy in this regard is highly underrated, and commonly not planned or structured in advance.

1. Firstly, the business broker should work with the Seller and determine which information is “high risk” and “low risk” from a disclosure perspective. Disclosing any information at all has a degree of risk by the way. Every business is different so the information needs to be considered in context with the business. Equally, every buyer is different, so considering if the buyer is an industry/strategic or an investor/market buyer is also important.

2. Next, the information should be organised and stored appropriately. This means it can be shared appropriately. The best way to do this is to organise information into several stages so it can be released in the same fashion. Being 2020, it is relatively easy for anyone to manage this electronically. A fancy word for this approach is a data room. For example;

a) We set up a folder that first discloses the information memorandum and high-level supporting documents such as lease and basic financials. As the Purchaser demonstrates their interest and likelihood of making an agreeable offer, the seller can share the second folder with them.

b) The next folder contains gradually more detailed information this is still a high level in nature. This might include a list of the process and systems, a high-level customer analysis, a list of recipes or trade secrets and IP that exists along with a description of its function and value and importance to the business, NOT it’s full disclosure. I.E. If there is a book of complete recipes, we would share the table of contents of that book at this stage.

c) The next step that is critical to the successful outcome is for both seller and buyer to confirm an indicative offer and key terms, subject to due diligence. The buyer has adequate and reasonable information to make an informed offer. Plus, at this stage, the exact identity of customers, suppliers, recipes, or processes has NOT been disclosed. The parties have agreed in principle that there a deal to be done (or not). This means both parties know where they stand, and there is no time wasted.

Next week it really becomes interesting, because now we start talking due diligence, deposits, exclusivity, and this is potentially the first time the buyer has exposure to information that may be “high risk”.

This is the first time in the sales process where both the seller and buyer are going to need to provide a small degree of commitment to each other. It is an exciting litmus test to see how they treat each other in commercial opposition. Ironically, they will also need to preserve a strong relationship for their business transition period, where they will be working together!

Selling or buying any business is intricate, challenging, and potentially extremely rewarding for both. We love talking shop, so if you need assistance with your transaction – give us a call for a no-obligation chat.


​Daniel Kogan

(m) 0401 620 918

(t)   (02) 8923 2632

Dan Levitus

(m) 0450 326 146

(t)   (02) 8923 2632


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