PR Management in Private Company Acquisition Transactions

Acquiring a company is a complex undertaking that requires not only precise financial and legal planning but also effective communication and public relations (hereinafter collectively referred to as “PR”) management.

Before proceeding – the term “company acquisition” is, of course, a simplification. A change in a company’s “owner” can take various forms depending on the type of entity involved. Without delving into the legal technicalities, a company acquisition can generally be understood as gaining control over it – meaning the ability to exert decisive influence over its operations[1].

Effective PR management in private company acquisition transactions[2] is crucial from the perspectives of employee and collaborator retention, relationships with contractors and customers, and the media perception of the deal. For example, if employees of the target company learn about the planned transaction by accident, this can reduce morale and productivity – and in cases where the fear of job instability is high, even result in talent loss to competitors. If such a situation occurs before the transaction is finalized, it may weaken the seller’s negotiating position or even halt the process altogether. For this reason, it is in the interest of both parties to regulate the rules for PR management contractually.

From a PR management perspective, the following are key elements of a properly conducted transaction: binding the parties to a duty of confidentiality from the early stages of negotiations, defining the timing and content of the transaction announcement in the transaction documentation, and safeguarding the proper execution of these obligations – for instance, through contractual penalties or warranty clauses.

As indicated in the title, this article refers to private companies, i.e., companies whose shares are not listed on a regulated market such as the Warsaw Stock Exchange or the alternative trading system NewConnect². In the case of public companies, the management board is subject to statutory disclosure obligations in relation to the acquisition of control over other entities. These obligations aim to ensure market transparency and equal investor access to price-sensitive information, and they directly affect how PR is managed during such transactions. A detailed description of these rules falls outside the scope of this publication.

Confidentiality Obligations During Transaction Negotiations

Transaction negotiations may extend over many months. For this reason, parties typically begin negotiations on the transaction documents – including the SPA (share purchase agreement) or PSPA (preliminary share purchase agreement) – only after signing a term sheet.

A term sheet is the equivalent of a Polish letter of intent and outlines the preliminary framework of the deal within which the parties conduct further negotiations. While a term sheet is generally not binding in the sense that it does not constitute a preliminary agreement, and either party can usually walk away (provided they did not act in bad faith, for instance, by using the negotiation as a pretext to obtain sensitive information from a competitor), it may include binding provisions. These may, in particular, impose confidentiality obligations regarding the negotiation process and the information exchanged.

Sometimes, confidentiality obligations are regulated only in the final transaction documents. This approach is flawed, as the transaction may ultimately not be completed, despite the parties’ best intentions. It is therefore advisable to introduce confidentiality clauses at the early negotiation stage – either within the term sheet or, even better, in a separate non-disclosure agreement (NDA).

Contractually Defining Communication Rules

A core element of proper transaction documentation is the inclusion of a confidentiality clause, which should cover not only the negotiations but also the content of the final agreements. In order to facilitate effective PR management, the agreement should define rules for both internal communication (e.g., to the target company’s employees) and external communication (e.g., to third parties).

One option is to grant the buyer the right to determine the content and timing of public communications. An alternative approach – which takes the seller’s interests into account – is to jointly agree on the content, timing, and form of the announcement. This second model allows the parties to coordinate a unified communication strategy during the drafting of the transaction documents. A jointly agreed-upon announcement also helps avoid future disputes over wording.

Ensuring Performance of Obligations

As with any contractual provision, even the best PR management arrangements will be ineffective if the parties fail to comply. To ensure enforcement, the transaction documents may include protective mechanisms such as contractual penalties or warranty clauses. These legal instruments link a breach of contractual obligations to the payment of a specified (lump-sum) amount to the injured party. Their purpose is to incentivize compliance.

Parties who choose not to include penalties or warranty mechanisms should be aware that if a breach causes no direct financial loss, the injured party may have no compensation claim. If a loss does occur, the burden of proof will rest with the injured party, who must demonstrate the extent of the damage – a potentially difficult task.

Conclusion

PR management is a key element in the success of private company acquisition transactions. Contractually defining communication rules and ensuring their enforcement allows the parties to control the flow of information and minimize the risk of unauthorized disclosures. When properly addressed, confidentiality and unified messaging contribute to the positive reception of the transaction by all stakeholders.

[1] The concept of “control” in practice corresponds with the definition of “acquisition of control” under Article 4(4) of the Polish Act of 16 February 2007 on Competition and Consumer Protection (consolidated version: Journal of Laws 2024, item 594, as of 18 April 2024).

[2] Private companies are companies whose shares are not listed on a regulated market, i.e., the Warsaw Stock Exchange or the alternative trading system NewConnect.