What Is a Non-Disclosure Agreement For Mergers and Acquisitions

Buying and selling companies is significantly more challenging than simply going to the store and picking an item off the shelf. In corporate transactions like mergers and acquisitions, the buyer and seller need to share certain confidential information to evaluate the merits of the deal—they cannot simply look at a price day and decide “yes” or “no” without doing a deep dive into the structure and operation of the companies. To obtain accurate financial information, data on material contracts, and customer information, counterparties often exchange non-disclosure agreements in mergers and acquisitions. These agreements pave a path to providing information safely and help ensure that each party respects the confidential nature of the information being shared.

Unfortunately, no document can guarantee that unethical business people will not misuse your information. However, having a non-disclosure agreement for mergers and acquisitions can reduce the risk of your data being sold or shared. A non-disclosure agreement helps provide you with a legal cause of action against wrongdoers.

When planning for your next business transaction, a sophisticated business lawyer can help you draft the M&A non-disclosure agreements you need to keep your information safe and your deal on track. Read on to learn more about how the BrewerLong Business Law team can help you in your next transaction.

What Is a Non-Disclosure Agreement?

A non-disclosure agreement (NDA) is a legally binding contract that establishes a confidential relationship between two or more parties. A party signing the agreement confirms that sensitive information they may obtain will not be made available to any others unless authorized under the contract.

A non-disclosure employment agreement is commonly used when companies hire people, but NDAs are also used when businesses enter into negotiations with other businesses. They allow the parties to freely share information without fear that it will be used in competition. 

Mutual vs. One-Way NDAs

There are two basic types of NDAs: mutual agreements and one-way agreements. A mutual NDA is used when each side is likely to share confidential information during a negotiation. The one-way agreement is used when only one side will be sharing confidential information with the other. 

Mutual NDAs

Although there is some appeal to using a mutual NDA, businesses entering into mergers and acquisitions should avoid mutual NDAs if they are not expecting to receive confidential information themselves.

An example of where a mutual NDA might be appropriately used is when a company is bidding to sell widgets to a factory that makes cars but must obtain certain information about the cars before it can customize its widget-making process. In this case, both parties will benefit from sharing—and protecting—information. Where both sides are not offering information, a mutual NDA may not be appropriate. There is no sense in making an NDA more complicated than it has to be; instead, the NDA should be appropriate for the situation. Experienced legal counsel can help you determine what kind of confidentiality protections are best.

One-Way Agreements

In contrast, one-way agreements are typically geared toward protecting the seller in an M&A transaction as the only disclosing party. In mergers and acquisitions, the seller typically has considerable bargaining leverage because they are the only ones disclosing information to prospective buyers. When negotiating the terms of a one-way agreement, buyers are often forced to be surgical in their editing requests and focus on the aspects of the NDA that matter the most to them. 

If you are the buyer in a transaction, you may benefit from having a lawyer help you “mark up” a one-way NDA. Trusted counsel can help you avoid the pitfalls of a too-restrictive agreement that might prevent you from getting the information you need or stop you from sharing information with trusted members of your internal or external team.

Important NDA Attributes in Mergers and Acquisitions

NDAs do not have to be lengthy and complicated. Instead, the best NDAs are well-drafted and concise. Some of the essential attributes to include in a non-disclosure agreement for mergers and acquisitions include:

  • Identifying the parties to the agreement;
  • Defining “confidential information”;
  • Setting forth the scope of confidential information for the receiving party;
  • Determining the receiving party’s duty of care;
  • Excluding certain documents or categories from the definition of “confidential information”;
  • Obliging the receiving party to return or destroy confidential information when requested by the disclosing party;
  • Carving out any documents or items the receiving party is permitted to retain per law or policy; and
  • Limiting the term of the agreement.

A solidly drafted NDA will cover these basics and more, depending on the facts and circumstances of your transaction. Speaking with a business lawyer at BrewerLong can help you carefully construct an NDA that will protect your business as you grow through M&A transactions.

How BrewerLong Can Help

We help Florida business owners achieve big dreams. We are passionate about helping small and medium-sized Florida businesses take their enterprises to the next level, and we want to help you do your best. Your success is our pride. To learn more about BrewerLong’s scope of legal services and how we can meet your business needs, contact the office to schedule a consultation with one of our skilled Orlando business lawyers today. 

This blog post is provided on an “as is” and “as available” basis as of the date of publication. We disclaim any duty to update or correct any information contained in this blog post, including errors, even if we are notified about them. To the fullest extent permitted by law, we disclaim all representations or warranties of any kind, express or implied with respect to the information contained in this blog post, including, but not limited to, warranties of merchantability, fitness for a particular purpose, title, non-infringement, accuracy, completeness, and timeliness. We will not be liable for damages of any kind arising from or in connection with your use of or reliance on this blog post, including, but not limited to, direct, indirect, incidental, consequential, and punitive damages. You agree to use this blog post at your own risk. Regarding your particular circumstances, we recommend that you consult your own legal counsel–hopefully BrewerLong.

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