NDAs Play a Crucial Role in Mergers and Acquisitions

Non-disclosure agreements (NDAs) play a pivotal role in mergers and acquisitions. These documents allow companies to share sensitive information while minimizing legal and competitive risks in the event the deal breaks down. As parties typically review confidential data to keep the deal moving forward, a carefully timed, well-crafted NDA formalizes each side’s rights and responsibilities. Working with an attorney who understands the importance of these agreements can help you balance transparency with confidentiality, while establishing enforceable remedies for breaches.

Various types of proprietary information can be covered by an NDA, including financial data, intellectual property, customer information, employee records and more. It is easy to surmise how damaging it can be if these types of information get into wrong hands while a merger or acquisition is being discussed. Accordingly, the timing of when specific parties to the transaction are required to sign an NDA is crucial. You might wish to delay substantive negotiations until an enforceable NDA is in place. 

Additional individuals might need to sign NDAs if negotiations move forward and the scope of shared materials expands. If the initial NDAs can be written in a way that protects information through all stages of the deal and the aftermath (even if a deal is not reached), that is more efficient for everyone.

There are situations where the negotiation of NDA terms becomes contentious enough to stall or even stop discussions of the underlying deal. These negotiations can show how seriously the parties take their responsibility for handling sensitive information and adhering to regulatory requirements.

An NDA for a merger or acquisition should typically include, at minimum, the following:

• A clear definition of what data is considered confidential
• Exceptions for data sharing with third parties (such as legal, financial, tax, real estate and other professionals) and terms for when those third parties must execute NDAs 
• Remedies for breaches of the NDA (for example, financial penalties and injunctions)
• The duration of the terms of the NDA

An NDA is necessary for codifying expectations for all parties regarding sensitive information and the potential penalties for unauthorized disclosure. Each party to a merger or acquisition should have their own counsel to negotiate the terms of an NDA, along with the underlying transaction. 

The Law Offices of Donald W. Hudspeth P.C. in Phoenix assists businesses in Maricopa County and throughout Arizona with the development and enforcement of NDAs and other restrictive covenants. To schedule a consultation, please call 866-696-2033 or contact us online.