Using a Non-Disclosure Agreement During Mergers and Acquisitions

During the merger and acquisition (M&A) process, the drafting of Non-Disclosure Agreements (NDAs) with potential acquirers is extremely important. Most of the agreements used during M&As are for the benefit of the acquiring entity, but the NDA is drafted to protect the selling entity. Thus, it is wise to confer with your legal counsel before the process begins, or as quickly as possible, to protect your company’s proprietary information, intellectual property and other important details of your business. Of course, the NDA must also be carefully drafted to allow sufficient time and opportunity for the acquirer to examine your business to entice them to proceed to closing the deal.

It is a common urge to draft the NDA in a way that generally covers all information about the target company as being protected. Although comprehensive language is beneficial, it is also important to precisely identify what is covered by the NDA so both parties have a clear understanding of what is expected. Additionally, if the NDA is breached, the precise language will strengthen your case against the breaching party.

The NDA should detail the data the target company prepares for the potential acquirer. This may include statistics, studies, presentations, reports, as well as the notes or other preparation materials created in anticipation of the merger or acquisition. The acquiring entity will typically request that the NDA expressly states that it does not cover information about the target entity that is publicly accessible.

The NDA should outline how the acquiring entity may use or share the information it obtains about the target company. In short, the NDA should limit the use of the information for the purpose of evaluating the proposed M&A transaction. The NDA should prohibit the use of the information for competitive purposes.

If the acquiring entity can share the confidential information about the target company, the NDA should clearly outline the circumstances under which the covered information can be shared without liability. A common example is the NDA permits protected information to be shared upon request from the government, during required disclosure in litigation, or if subpoenaed. When the protected information is shared with attorneys, be sure the NDA includes language protecting the right to attorney-client privilege and that it is not being waived.

The NDA should have a specific damages clause providing the target company with the right to pursue equitable remedies (such as specific performance or injunctions), as well as monetary damages. If the potential acquiring entity breaches the NDA, monetary damages may not be adequate to cover the losses suffered by the breach.

If you need the advice and guidance of an experienced business attorney, contact our office today to schedule an appointment with one of our knowledgeable attorneys. We can help make sure you are protected under your legal documents and if a dispute arises, we will work diligently to obtain the best possible outcome in your case.