The M&A Nondisclosure Agreement (NDA) – The Key Issues

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In an acquisition, the Buyer and Seller will want to keep confidential discussions about a potential transaction and the actual information that they will disclose to each other.  Accordingly, the first document the parties are likely enter into is an agreement to accomplish these purposes, commonly known as a nondisclosure agreement (NDA) or a Confidentiality Agreement.  Sellers, particularly those without inhouse counsel, should not take the NDA lightly and should carefully review its provisions with counsel.

What Information are the Parties Trying to Keep Confidential?

  • Sellers will want the discussions between the parties about the purchase to remain confidential, especially from the Seller’s vendors, employees and competitors. In addition to including a provision in the NDA, the Buyer and Seller can implement procedures to ensure that the discussions are kept confidential, such as by limiting the number of employees and advisors involved.
  • The Seller will be providing highly sensitive and detailed information about its finances, projections, strategies and operations to the Buyer and will therefore need a broad definition of what constitutes confidential information in the NDA. This will generally be acceptable to the Buyer, subject to standard exclusions for information that becomes public or is independently obtained by the Buyer from elsewhere.
  • Sellers should generally try to avoid disclosing highly confidential information such as patents, source code, and customer lists in the early discussions. If this is not possible, the parties may consider a separate NDA with special procedures such as restricted access to these sensitive documents.

Should the NDA be 1-Way or Mutual?

  • Should the NDA cover only information provided by the Seller to the Buyer (1-way) or should it also cover information provided by the Buyer to the Seller (mutual)? At first glance it may appear that a 1-way NDA is all that is required as the Seller is principally providing confidential information to the Buyer.  A Buyer, however, may provide confidential strategic information to a Seller, or the Seller may need information from the Buyer if the Buyer is paying for part of the purchase price with its stock, so a mutual NDA is often the best option.

How Long Should the NDA Last?

  • A lot of information loses its sensitivity over time, so it is common for NDAs to have a term of 1 to 3 years.
  • Trade secrets lose their protection if publicly disclosed, since they are then no longer secret. Accordingly, if the Seller provides trade secrets to the Buyer, the Seller should provide that the NDA continues to cover trade secrets for so long as they are trade secrets, which could be indefinite.

Restricting the Use of Confidential Information

  • Sellers should ensure that the Confidential Information is provided only for the purposes of the transaction. This is particularly important where the Buyer is a company in the Seller’s industry that could use the information, or where the Buyer is a private equity firm.
  • Sellers should ensure that Confidential Information is returned or destroyed at the end of the term. Buyers may request exceptions for record keeping and regulatory compliance.

Specific Terms in an NDA in an M&A Deal

  • Employee Non-solicitation
  • Where a Buyer receives information about Seller’s employees, the Seller will often want to include a provision in the NDA preventing the Buyer from soliciting those employees, particularly where the Buyer is a competitor or private equity firm. State law may limit the enforceability of these provisions
  • Residual Clause
  • Sometimes Buyers request a provision stating that information remembered later by the Buyer’s personnel “in their head” without reference to a document (residual information) may be used by the Buyer for any purpose.
  • While appearing to be reasonable at first glance – a person can’t unlearn what they already know – this is a dangerous provision for Sellers. It can lead to loss of trade secret protection for the Seller or potentially a royalty-free license to use the Seller’s intellectual property indefinitely.  If required for business reasons in a deal, the Seller should carefully negotiate the provision with its counsel.


If you require any further information on NDAs in the M&A process, please contact Edward Grenville, Shareholder, Inspire Business Law Group, PC (; +415 279 0779;

This article is provided for educational and informational purposes only and is not intended to be, and should not be construed as, legal advice.