Merger negotiations should employ non-disclosure agreements

On Behalf of | Nov 30, 2023 | Firm News |

Non-disclosure agreements have become increasingly unpopular in recent years, particularly in relation to employment law. Still, they are an essential part of negotiations when one company buys another or merges. No mergers and acquisition (M&A) deal closes without due diligence, where the buyer or potential merger partner will need to review sensitive information, such as lists of key customers and suppliers, company financials and taxes, details about litigation and claims, intellectual property, trade secrets, and research and development. The potential buyer or partner needs to know what they are paying for.

While the details become moot once the parties close the deal, mergers and acquisition (M&A) deals are often very complex, so it is common for negotiations to fall apart or hit an impasse, which leaves one or both parties with sensitive information about the other (who could even be a competitor). The negotiators need to take steps to minimize the risk of sharing sensitive information.

What to include

The details of each M&A deal will vary, but one or both parties will need to see what’s under the hood. Before sharing the information, it is crucial to have a binding NDA in place. They should address details specific to the transaction. Here are some issues to address:

  • Confidential information: One or both parties should identify all information they consider confidential and protected.
  • Establishing rights: The information exchanged is only used to negotiate a deal. The other party has no claim to use the information in other contexts. The disclosing party may also make clear that it does not guarantee the information shared is complete or accurate.
  • Destruction or return of material: If the deal falls apart, there should be prearranged protocols for what to do with the exchanged information.
  • Nonsolicitation of employees: Key employees add value to the company and are critical to its success. However, they can impress the other party enough to woo the staff without closing the deal.
  • Nonuse/non-disclosure: Identify who has access to the protected information and outline if, how or when to contact customers, vendors or employees during due diligence.

Holding them accountable

Not every deal goes through, so protecting a business from undue harm is essential. A company does not want to see others use confidential or proprietary information to their advantage. Nor do they want the other side to share information that could damage the company’s reputation. An effective NDA can help maintain its value and standing as it moves forward on its own or seeks a different buyer, seller, or merger partner that is a better fit.