Agency wants to ensure confidentiality from potential buyer
Mark Pestronk is a Washington-based lawyer
specializing in travel law.
Q:As I am approaching an age at which I would like to retire, I am hoping to sell my agency. The
most likely prospects are my biggest
competitors, but I don’t trust them not
to steal my clients and employees after
I reveal their identities and other details
about them. I know that I can require the
competitors to sign confidentiality agree-
ments, and I will certainly do so, but I
am afraid that they will try to breach the
agreements quietly and I will be unable to
prove that they did so. Am I being para-
noid, and if not, what can I do to prevent
the breaches of confidentiality?
A:You are being realistic, not para- noid. In the overwhelming major- ity of cases, prospective purchasers
honor their confidentiality agreements, but
there are certainly exceptions.
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For example, competitors once in a while
pose as potential purchasers solely in order
to gain information that they can use to
their advantage, even after signing confidentiality agreements. Not only do they
learn about your accounts and staff, but
they also learn what your supplier deals are
so that they can pressure the suppliers for
the same or better deals.
In other cases, the potential purchasers
have planned in good faith to buy the agency but decided that it was much cheaper to
Finally and most commonly, the prospective buyers have inadvertently disclosed
confidential information a long time after
the deal was called off, evidently forgetting
about their confidentiality obligations.
Unfortunately, there is no foolproof
way to sell your agency without taking at
least some risk that the prospective buyer
is going to use your confidential information against you. Even if you negotiate with
people from outside the industry, there is
no guarantee that they won’t open a new
agency to compete with yours.
However, here are four ways to minimize
• Require the prospective buyer to list, in
the agreement, every person who will be
gaining access to your confidential information, including not only the buyer’s de-cision-making executives but also its clerical employees, attorneys and accountants.
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Then provide that the buyer will not allow
any other person to access the information.
• Require the named individuals to sign
personally, meaning that they will be personally liable for their proven breaches. Of
course, you should also state that the buyer
corporation or limited liability company
will also be liable.
• Provide for liquidated damages, such
as $100,000 in case of a proven breach. Although the enforceability of such a clause
will vary from state to state, you can rest
assured that its mere presence in the agreement will help the buyer’s personnel remember their obligations.
• You can engage in phased disclosure.
You would first disclose less sensitive information, such as your total sales volume,
mixes, employee counts, preferred suppliers’ names and GDS data.
Only after you feel confident that you
are going to close the deal would you disclose the more sensitive information, such
as employee and account data and override
deals. In some cases, sellers have been able
to postpone revealing that information until a few days before closing.
To submit a question for Legal Briefs,
email Mark Pestronk at mark@pestronk