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Understanding Why Business Brokers Don't Sign Non-Disclosure Agreements

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Jeff Snell | 04/06/2024

Whether it's a large corporation looking to acquire another or a small business owner seeking to sell their enterprise, the protecting the sellers sensitive information is critical. Even the fact that the seller is exploring exit options must be kept confidential. Non-disclosure agreements (NDAs) are a common tool used to safeguard proprietary information during negotiations between business brokers and buyers. However, in an interesting twist, it's business brokers who refrain from signing NDAs.

This departure from conventional practice might seem puzzling at first glance, but a deeper understanding of the dynamics between business brokers and their clients sheds light on this approach.

The Role of a Business Broker

Business brokers play a crucial role in facilitating the sale of businesses. They act as intermediaries between buyers and sellers, helping to navigate the complex process of selling a business. Their responsibilities typically include business valuation, marketing, finding potential qualified buyers, negotiating deals, and ensuring a smooth transaction process. Throughout the process the brokers role is to share confidential information albeit at the right time to the right people only after they have signed an NDA.

Trust and Transparency

Successful business brokers and M&A advisors state that their best referral sources are past clients and other trusted advisors (attorneys, CPA’s, financial advisors and private wealth managers). These advisors rarely sign NDA’s either for similar reasons. An intermediary that fails to manage confidential client information quickly gains a negative reputation and loses their most valuable source of business. When the seller does not ask for an NDA they are demonstrating their understanding of the role of the intermediary and that it’s in their best interest to find a broker with whom they are completely comfortable whose judgement they trust.

Legal and Ethical Considerations

Another factor influencing the decision of brokers not to sign NDAs is the potential legal and ethical implications. Business brokers operate under strict professional standards and codes of ethics. While they are committed to safeguarding their clients' confidential information, signing an NDA could potentially create conflicts of interest or legal liabilities for the broker. For instance, it might restrict their ability to represent other clients or share information necessary for conducting due diligence with prospective buyers.

Market Knowledge and Discretion

Experienced business brokers possess extensive knowledge of their local markets and industries. They understand the importance of discretion when it comes to sensitive business information. Instead of relying on legal agreements, these brokers leverage their reputation and track record to reassure clients of their commitment to confidentiality.

Gray Areas

There are times when a seller’s intermediary should contact them prior to disclosing confidential information. For example, when a potential competitor inquires on a listing they may have a legitimate reason for wanting to acquire another business. However, they may also be attempting to collect information to gain a competitive advantage. The intermediary should discuss the potential risks and rewards with the seller and get their authorization in advance.

Relationship Building

Selling a business is often a deeply personal and emotional process for the owner. Business brokers recognize the significance of building strong relationships with their clients based on trust, respect, and open communication.

While non-disclosure agreements are standard practice for business buyers, the decision of business brokers not to sign NDAs with their seller clients reflects a unique approach to confidentiality and trust-building. By prioritizing transparency, legal considerations, market knowledge, and relationship-building, brokers aim to create a supportive and confidential environment for sellers throughout the M&A process. Ultimately, this approach underscores the importance of trust and professionalism in the world of business brokerage.




This blog was originally written by Jeff Snell, LMCBI, M&AMI, CM&AP, ABI. Jeff is the founder and principal broker of ENLIGN Business Brokers and Advisors (www.enlign.com), headquartered in Raleigh, NC. For over 20 years, ENLIGN has been providing business brokerage and M&A transaction services to main street and lower middle market business owners across the United States via the Atlas Alliance. He can be contacted at (919) 624-1124 or jsnell@enlign.com.