Businesses told to beware of bogus buyers 1

Businesses must be alert to the threat of competitors obtaining commercially sensitive information under the guise of buying the business.

Nick Taylor, a Partner in our Corporate team; mmercialis warning companies to be vigilant against approaches from other companies who may express an interest in buying the business as a means of obtaining sensitive information. 

It is perfectlywould be normal to expect afor a buyer to investigate a potential target business, however sellers should exercise caution in theirsome fail to do so, as they are so eagerness to sell up. Businesses should be very sure that the buyer is genuine before allowing access to sensitive information. Particularly in the current climate, the seller should be satisfied that the buyer has funding in place and that there is a genuine interest in making the acquisition. Companies who may be eager to sell should resist the temptation to disclose sensitive information at an early stage.

"A buyer should always insist on conducting due diligence on a target business it was looking to buy.  The due diligence process helps the buyer to establish a full picture of the target business and identify any risks associated with it. During the course of this exercise,

"The buyer will gathers a range of different information about the business in order to better understand it and as a result of this process the buyer may become privy to a range of sensitive information.

The sensitive information unearthed through due diligence could include price lists, customer lists, employees data or other detailed commercial information.  Should the sale of the business complete, the fact that the buyer has become privy to sensitive information about the business is irrelevant.  However, problems can arise if the transaction falls through for any reason after the due diligence process has begun.  This is a particular concern if the buyer is also a competitor or potential competitor of the seller.

There are a number of ways in which a seller can protect its position in the build up to sale.  During the due diligence exercise, the seller should question whether the buyer requires the information requested, and to what level of detail. Careful consideration should be given to the timing of disclosure of particular information and no information should be released until the buyer has signed a confidentiality agreement. Further consideration should be given to the timing of disclosure of particular information. 

This is especially the case when the buyer is yet to have funding in place to complete the transaction.  Sellers should be mindful of competitors using the lure of a transaction to 'fish' for information on the business.

For further details, please contact, Nick Taylor a Partner in the Corporate team on 01384  342127

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