The Power of Transparency in M&A: Why “Going Ugly Early” Works
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I recently spoke at an M&A conference about the role of marketing materials in business sales, emphasizing a crucial yet often overlooked principle: “Going Ugly Early”.
What does “Going Ugly Early” mean? Essentially it means being upfront about the tough stuff – those challenges or weaknesses that every business has. Instead of trying to sidestep or downplay them, addressing them early, particularly in the Confidential Information Memorandum (CIM), the standard document shared with potential buyers, sets the tone for an honest and productive process.
It’s understandable why sellers would hesitate. The idea of leading with a negative is counterintuitive. Many sellers hesitate to disclose negative details too soon, assuming they can “time” their release or soften the impact. Many worry that disclosing problems upfront could scare buyers away. However, postponing difficult conversations often leads to distrust, wasted negotiations, or even a collapsed deal. Certain business risks are unavoidable but addressing them upfront positions sellers as transparent and trustworthy—qualities that buyers respect.
When should you “Go Ugly Early”? There are some situations where early disclosure is essential.
Loss of a Major Client : If a company has recently lost a high-value customer, buyers need to know upfront. Instead of hiding the issue, sellers can provide context, such as new client acquisition efforts or contract diversification strategies.
Revenue Declines or Profitability Concerns : A decline in revenue—whether due to industry shifts, increased competition, or supply chain disruptions—should be openly discussed. By doing so early, sellers have the opportunity to highlight a turnaround plan or new growth initiatives.
Key Employee Departures : If a top executive or sales leader has recently left, it’s better to disclose it early and explain any transition plans, new hires, or restructuring efforts that mitigate risk.
Operational or Technological Limitations : If a company relies on outdated technology, has production bottlenecks, or faces challenges in scaling, these should be acknowledged upfront with a strategy for improvement.
Why it Works
We’ve seen time and again that buyers are more likely to stay engaged when they understand the full picture. Surprises that come up later in due diligence are what truly derail deals. By addressing concerns upfront, sellers minimize uncertainty and foster constructive conversations.
At Touchstone Advisors, we take the time to understand all aspects of our client’s business and often remind them that every business has its warts and blemishes. It’s not about being flawless; it’s about demonstrating your awareness of those flaws and your commitment to tackling them. Buyers respect that. It shows maturity, responsibility, and ultimately, a partner they can trust.
At Touchstone Advisors, we take the time to understand all aspects of our client’s business and often remind them that every business has its warts and blemishes. It’s not about being flawless; it’s about demonstrating your awareness of those flaws and your commitment to tackling them. Buyers respect that. It shows maturity, responsibility, and ultimately, a partner they can trust.
Build Trust, Close the Deal
Transparency doesn’t mean leading with doom and gloom. It means positioning yourself as a credible seller who understands the nuances of your business. At the end of the day, transparency builds trust. When buyers trust you, they’re more likely to stay invested in the process—even when challenges arise.
So, if you’re thinking about selling your business, don’t be afraid to “go ugly early”. It might just be the smartest move you make.
For more information on how we guide our clients through the Touchstone Process, feel free to reach out for a confidential discussion.
Steven Pappas, M&A MI
Partner, Managing Director
Touchstone Advisors
860-669-2246
spappas@touchstoneadvisors.com
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