Non-disclosure agreements (NDAs) are critical for protecting sensitive and confidential information during a merger or acquisition. NDAs allow parties to exchange everything from financial data to intellectual property to customer and employee details.
These agreements allow all parties to avoid regulatory privacy violations and prevent information from getting out to competitors and others who can use it against the emerging company.
The timing of NDAs is crucial
No party to a merger or acquisition should wait until they’re in the middle of it to put the appropriate NDAs in place. It may be necessary to have additional people sign an NDA if negotiations move forward.
Even after the deal is finalized (or even scrapped), the NDA should protect any information and/or documents that have been shared for a specified period. This will vary depending on the type of business that’s involved. If the initial NDAs can be crafted to protect information at all stages of the deal, regardless of the outcome, that’s simpler for everyone involved.
Negotiating the terms of the NDA itself can be a challenge to the relationship between or among the parties involved and whether the deal is able to be completed. It’s important to balance the need to keep confidential information secure with the need for the other parties to have access to the information they need – particularly in an acquisition.
What the NDA needs to cover
A comprehensive NDA should include the following:
- A clear definition of what data is considered confidential
- Exceptions where parties may share data with others (such as financial and legal professionals) and the requirement of confidentiality agreements for those outside parties
- The duration of the NDA terms (which, as noted, typically extends beyond the close of the deal)
- Remedies for a breach of the NDA, such as injunctions and monetary penalties
It’s critical to remember that an NDA is not meant to be a substitute for being scrupulously careful with data and document handling. It is, however, crucial for codifying and detailing the specific expectations for how closely such information will be held and – as just noted – for detailing penalties if one or more terms of the agreement is breached.
Negotiating an NDA is an early and important step in the relationship between parties that are considering a merger or acquisition. These negotiations can help shed light on how seriously the other party takes their responsibility for handling sensitive information and complying with regulatory requirements. It’s crucial for each party to have their own legal guidance as they negotiate the terms of the agreement to protect their business, customers and employees.