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  • Writer's pictureRajvin Singh Gill

M&As: Negotiating Non-Disclosure Agreements (NDAs)

Why have an NDA in the first place?

The customary procedure at the commencement of any M&A involves establishing a confidentiality agreement (also knowns as an NDA). This agreement is designed to

safeguard confidential information that is shared throughout the due diligence phase of the transaction, and occasionally, even afterward.

It is standard practice for the seller (or its advisor) to prepare the NDA. In most instances, the NDA will contain “one way” or “unilateral” safeguards i.e. provisions focused on safeguarding the seller's information exclusively. Typically, these unilateral measures are sufficient because only the seller is divulging confidential details. Additionally, in many cases, the seller's NDA will encompass various "two-way" clauses such as safeguarding the anonymity of both parties, the prospective transaction itself, and granting both sides the prerogative to withdraw from the prospective transaction at any point.

Typically, NDAs may exhibit substantial differences from one deal to another. Although sellers usually lean towards a widely construed drafting style, such as the definition of what constitutes confidential information and the duration of the confidentiality commitment, buyers often aim to confine the scope of these clauses to allow for more manoeuvring room. To better demonstrate this, below are several extensively negotiated NDA provisions analyzed from the point of view of both parties.

Authorised Recipients of Confidential information

Sellers will strive to restrict the recipients of their confidential information to prevent it from falling into the possession of their competitors. For instance, they might demand that confidential data is disclosed solely to those buyer representatives who possess a legitimate requirement to access it. Furthermore, this access may be granted only to those who haveexecuted an independent confidentiality agreement or an extension to the existing NDA, confirmed by a signed copy submitted to the seller. Additionally, sellers will aim to make the buyer accountable for any violation of the NDA committed by any member of its representatives.

Buyers frequently engage various advisors to assist and provide counsel during their assessment of a potential acquisition target. This group may encompass affiliates, partners, employees, agents, representatives, consultants, legal advisors, financial experts, and notably, sources of financing. In order to alleviate the seller's concerns, a buyer might propose notifying the seller in writing or even committing to obtain the seller's approval prior to revealing confidential information to specific recipients. Essentially, the buyer will aim to minimize the necessity of obtaining individual NDAs for each representative.

Accessibility to the Seller’s associates/affiliates

Sellers commonly aim to channel all inquiries and correspondence through a designated individual or advisor, therefore putting in place a “zone of confidentiality” clause. Expanding on this, sellers might also strive to explicitly disallow any interaction with their employees, executives, and directors, and in certain instances, even with their customers, suppliers, or vendors.

Buyers commonly aim to ‘soften’ the effect of this limitation by completely omitting third parties or, at the very least, confining the scope of this provision to encompass solely those parties that the buyer is actively aware of and/or that maintain an ongoing affiliation with the seller.


Sellers prefer expansive non-solicitation provisions to hinder potential buyers from enticing talent, encompassing the sellers' employees, associates, and their associates' employees, withfew or no exceptions.

Buyers, for example private equity or venture capital firms, usually possess an extensive network of associates, including numerous employers within their portfolio. Consequently, they seek to narrow the extent of the non-solicitation clause to ensure their capacity to adhere to this commitment. In such a case, a buyer might then attempt to confine the scope of a non-solicitation clause solely to the seller's high-ranking or executive-level employees involved in the transaction and/or those who lack a pre-existing connection to the buyer.

“Club Deals” and Lock ups

Sellers aim to hinder their purchasers from assembling teams of bidders to engage in a transaction, often referred to as "club deals" or "consortium bidders." These arrangements can have an adverse effect on the seller's position by diminishing competitive bidding and, as a result, potentially lowering the transaction's offered price.

Also, a seller might request the buyer to verify that it hasn't entered into an exclusive or "locked up" agreement with funders such as financial institutions. Such arrangements could restrict the available pool of capital and hinder other potential buyers from obtaining financing and presenting bids to the seller.

Buyers occasionally utilize consortium bidding as a strategy to participate in a transaction that they might not have the financial means to undertake independently. However, in the case of private equity or venture capital firms, given that such firms possess access to multiple capital sources, they typically find it unproblematic to comply with a seller's broad restriction on such bidding practices.

Ultimately, as it is with all forms of negotiations, it is the party possessing the most amount of leverage who shall prevail.

Interested to know more about NDAs or wish to discuss matters pertaining to the M&A process? Feel free to contact us for a complementary consultation


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