Entrepreneurship · Startups

Why terms of acquisitions are not disclosed?

Sam Lepak Internet Marketer I Social Media Expert I Professional Learner I Student Entrepreneur

September 20th, 2016

Wondering what is the reasoning behind not disclosing the terms after an acquisition has been disclosed to the public. Is this mainly due to the fact that it was a flop and perhaps an acqui-hire or something related to recoup the investors money? Look forward to hearing your thoughts.

Martin Omansky Independent Venture Capital & Private Equity Professional

September 20th, 2016

Privately-held companies are not required by law to disclose any information. Some states require annual reports from private companies, but I assume there are various disclosure requirements, depending on the jurisdiction. Public companies have different disclosure rules, but details are generally not disclosed, usually to protect private data from use by competitors. It is true that limited or no public disclosure of information sometimes hides other provisions, but that fact is usually not the motivation.

Rob Adams Advisory Board Member at PhotoPad For Business

September 20th, 2016

When you're acquiring a company, there are a number of factors you have to 

First, timing.  You make an offer. It gets accepted. Terms are not always final at this stage especially due to regulatory approval, but sometimes only directionally specified.  A press release goes out.  Employees, partners and customers learn of the deal.  Because terms are not concrete, announcing anything beyond price and high level assurances is unwise.  Regulatory approval gets underway.  Terms change to meet regulatory approval where appropriate.  During this time, the companies may not act as one.  Everything needs to keep going as is. Acquisition closes and the company releases a short statement, normally without terms. 

Second, what's the right thing to do by the employees.  Disclosing terms can disclose private financials of some of the founding team or major employee stake holders.   If terms include evaluation of a sale of a unit, demotiving employees serves no purpose for the company or for them.  Terms may include shutting down part of a business, moving an office, exiting a market or killing off an internal competing product.  Employees should not find any of this out in a press release.   That's just crazy and 19th century. 

Next, what's the right thing to do by the customers.  The customers of both companies may be impacted by an acquisition.  Disclosing terms that telegraph this without having the time or ability to put a plan in place will destroy sales and customer confidence.  

Next, what's the right thing to do by partners. Partner or channel relationships will need to be reconciled and may require renegotiation.  Without a clear understanding of what the two companies want, which may take months of planning, releasing terms that frighten or confuse partners is counter productive. 

Next, what's the right thing to do by investors.  Announcing terms that will have a material impact of unknown magnitude at the time of the announcement could very adversely and unnecessarily affect investors.  There are some cases where the effect can be positive, and these are usually announced, like the definite sale of a unit or location to appease regulators (forgone conclusion) or the price which would be fixed at the time of the deal. 

Lastly, what's the right thing to do by the deal team.  Acquisitions are complicated and difficult.  It's nearly impossible to find ways to accurately articulate the full set of terms of a deal, especially when even the slightest misconception or slight PR mistake could lead people to think they may lose their jobs, when the product they depend on is in jeopardy, their sales numbers might plummet, or their wealth will shrink.  This is doubly true when the execution of terms is far more important than the terms themselves.  

For tiny acquisitions, it's just not worth the effort.

Rob G

September 20th, 2016

There's no upside to the acquirer to disclose deal terms (unless they are publicly traded and the acquisition has a significant impact).  If the acquired company negotiated some particularly favorable terms then every target down the road will expect those same terms or better.  It's just easier to keep thing private.