Other ways of getting information
In the exercise of due diligence the most obvious route is not always the most possible route. As an example, we know of a recent case in which a larger retail company was interested in acquiring a smaller retail company that was not interested in being acquired. Because there was no immediate interest in being acquired, the smaller company did not provide information on their sales, though they did provide a figure that they considered would tempt them to sell.
Since the smaller company was privately held, sales figures were not publicly available. While an annoyance, this lack of sales information was at best a minor hindrance for the acquiring company, because while the figures might not be publicly available, they were nonetheless still available.
How did the larger company get the information? While sales may have been kept confidential, the sales locations were clearly not confidential, and their locations, present and planned, was readily available. As it happens, retail rentals agreements frequently involve a percentage of sales as part of the rent. Thus, the malls where the smaller company had stores knew the sales figures for the private company’s stores. And since boilerplate lease agreements do not specify that information relating to the lessees be kept confidential, the larger company was therefore able to use its economic clout (sometimes referred to as threats and bribery) to get the landlords to provide them detailed sales information.
When it became clear that the smaller company was not willing to sell at the price the larger company wished to pay, the larger company chose to take proactive steps to hinder the growth of their competitor. By observing the actions of the smaller competitor – looking for indicators of what they were doing – they were able to figure out where new stores were to be built. With this knowledge in hand, they offered to pay higher rental rates to the malls where the smaller competitor wanted to put stores, displacing them. This tactic was very successful in closing off good retail expansion possibilities for their smaller competitor.
When exercising due diligence, it is therefore important to recognize that there may be multiple sources for any given piece of information, that certain critical information may reveal what is being done, and reveal it a precisely as if the detailed information itself were made available from the target (source).