Business-Minded Legal Solutions

Does your M&A NDA do what it should?

Companies use non-disclosure agreements to protect themselves and the ongoing viability of their business as they enter and exit business agreements with employees, vendors and business partners. When using these agreements, the company should ask two key questions:

  • Do the NDAs do what they are supposed to?
  • Are they enforceable?

Why it is important for M&As

Businesses or even competitors may consider an acquisition or merger. Talks could go on for some time, but potential partners would not get very far without sharing meaningful information about the company, its products, revenue streams, and other crucial details. These agreements outline how the information will be shared. Often, NDAs need to be tailored for a M&A context.

Mutual versus one-way

During negotiation, each party needs to be careful in case the deal falls through. Sharing sensitive information with people outside the company is a significant risk. Moreover, each side cannot unlearn the knowledge gained during negotiations. Hence the need for the NDA. Two standard formats are:

Mutual agreements: When it comes time to share sensitive information for the other side to review, it may be wise to insist on a reciprocity arrangement where each side shares information. As part of that arrangement, both parties can sign mutual NDAs.

Non-mutual agreements: Perhaps a buyer is making a cash offer and therefore need not offer confidential or sensitive information. The NDA arrangement should reflect this. The seller should still have serious bargaining power as the only party sharing information with the potential buyer. Conversely, the potential buyer must protect their interests, be careful about different parts of the agreement, and focus on those that matter the most to them.

Common details to include

Well-drafted NDAs need to be concise while also outlining such crucial details as:

  • Defining what is confidential
  • Defining what is not confidential
  • Who are the parties involved
  • The parties’ duties, care and responsibilities
  • The return of sensitive documents
  • Determining which documents are kept, per law or policy
  • The term of the agreement

Depending upon the M&A deal, the NDA will include other provisions as well.

Trusted guidance is essential

The goal is to get the necessary information and share it with appropriate internal or external team members. Trusted legal counsel will be essential to both sides in reviewing and editing the NDA to ensure that it addresses all key issues without being too restrictive.