During the process, once the parties have met and there is affinity and mutual interest, the requests for information and documentation begin. It is not uncommon to see an enthusiastic buyer wanting to get all information to make sure they understand everything well early in the process. At the same time, the seller wants to be careful and keep some confidentiality (namely clients, suppliers, employees). At that point we are speaking to a competitor, and we do not know if we are going to agree on the main aspects of the transaction.
Here is the general rule of thumb of what is shared before a letter of intent:
- Annual and most recent monthly financial statements.
- A good description of intangible factors: operations, type of customers, human resources, suppliers, and the state of the market.
- A good description of tangible factors: equipment, systems, lease, or real estate information.
The letter of intent (LOI) will be the beginning of due diligence phase – this is when we know if we have an agreement on the price and terms, and so will begin the exclusivity.
The information that will be shared in due diligence normally includes all aspects of the business in detail – processes, systems, except for the list of employees with their names and contact details, the list of customers and suppliers. This last strategic information is only shared later in the process and can be after the lifting the conditions (either those of financing, due diligence, or any other nature).
The next potential step is change management, which includes the transition for the employees. Such a strategic step needs to be planned to be in place after the deal is closed. Without having completed the full review of the terms of purchase, a seller could find themselves in the unfortunate position of having an aborted transaction when they have notified their employees and revealed too much information.
Know what to share and when like in a relationship: you do not reveal everything right at the start, you get to know each other gradually, it is like removing the layers of an onion, please, only one step at a time.