The discretion problem in small-market M&A
In a market as small as New Zealand's, confidentiality is not a courtesy — it's a precondition. We've turned away mandates where the size of the required team made real discretion impossible.
That's a trade-off worth naming plainly, because most advisers won't.
Small markets leak, and it is rarely malice. New Zealand's business community is a few thousand people who keep meeting each other. The accountant, the banker, the lawyer, the insurer, the recruiter and the industry association all overlap, and so do their client lists. Put fifteen people around a transaction in Auckland and you have fifteen people who each know someone who knows the target's largest customer. Nobody has to behave badly for a deal to become known. Proximity does the work on its own, which is why confidentiality here has to be designed into the process rather than promised in a paragraph of the engagement letter.
What a leak actually costs, in order. Staff hear first, and the good ones — the ones a buyer is paying for — start taking calls. Customers hear next and begin hedging: a second supplier gets a trial order, a reorder slips a month, a contract renewal is suddenly worth renegotiating. Suppliers tighten terms because they read uncertainty as credit risk. Competitors brief against you, and the brief writes itself: they're for sale, they'll be distracted, their people are leaving. Then the bank asks a question it had not previously asked. Each of those lands in the trading numbers, and the trading numbers are what the buyer is about to diligence. The leak does not merely embarrass the seller. It arrives in the model as a discount and gets paid for at completion.
A leak doesn't just embarrass you. It shows up in the numbers the buyer is about to diligence.
The arithmetic of a large deal team. Every additional person in a process is another point at which it can escape, and the risk does not rise in a straight line — it rises with the number of connections between them. Large firms staff transactions with several juniors because their economics require it; utilisation is the business model. In a market this size that produces a structural conflict nobody says out loud: the staffing that makes the engagement profitable for the adviser is the staffing that makes real discretion impossible for the client. The pitch promises a senior team. The process delivers a wide one.
How we run it instead. One principal carries the file end to end and is the only person who holds the complete picture. Specialists — legal, diligence, debt, technical — are brought in named, for defined scope, under their own confidentiality obligations, and are not given information they do not need to do their piece. The approach list is agreed with the client in writing before a single call is made, and nobody outside it is contacted for “market colour”, which is the most common way a seller's intentions reach their own competitors. Information goes out in stages against signed agreements, not in one comprehensive pack at the start.
The mandates we have turned down. There have been engagements where the only genuinely credible process required contacting enough parties, through enough intermediaries, that we could not promise discretion and mean it. Saying so costs a fee. It is still the right answer, because an adviser who will promise confidentiality they cannot deliver has told you something about every other assurance in the document.
What a seller should actually ask. Not “is this confidential”, which invites a yes from anyone. Ask: exactly who inside your firm will know, by name, and who else in the chain? Who makes the first approach, and are they senior enough that the call is not passed down? What is released at stage one, and what is held back? How many parties are on the list, and did I approve it? And what happens if it leaks — what is the plan, who tells my staff, and in what order? Most advisers have never been asked that sequence, and the quality of the answer tells you a great deal.
The honest exception. Sometimes width is worth it. If the business is genuinely contested and a competitive auction will produce a materially better price, broad contact is the cost of that competition and it can be the right trade. The judgement is whether the uplift from competition exceeds the cost of exposure — and for most owner-led New Zealand businesses under a hundred million, it does not. A tight list of five to eight well-chosen parties, approached properly by someone they will take a call from, generally beats a wide campaign. It also leaves the seller with a business to go back to if they decide not to transact, which is an option worth more than most people price it at.
Discretion outward, not secrecy inward. The failure we see most often is the mirror image of a leak: an owner so anxious about confidentiality that they keep their own co-shareholders, and the two or three managers whose cooperation the process depends on, in the dark until late. That is not discretion, it is exposure of a different kind. A shareholder told at the eleventh hour has every incentive to slow things down and ask for more; a key manager who learns from a buyer's diligence request that the company is being sold is a retention risk the buyer will price. The people who genuinely need to know should be told early, deliberately, and in the right order — with the same confidentiality obligations as anyone external. Deciding who those people are, and when each is told, is one of the first pieces of work in a well-run process, not an afterthought once the offers are in.
If you are weighing a process and want to understand who would need to know before anything begins, that is worth establishing at the outset rather than discovering later. You can also have these notes sent to you by email.