The Role of Non-Disclosure Agreements in Mergers and Acquisitions

When two companies begin exploring a potential merger or acquisition, each must gain access to sensitive information about the other in order to evaluate the proposed transaction. At the same time, both parties must protect their own proprietary information, including operational data, strategic plans, financial records, and confidential information relating to customers, suppliers, and employees.

A properly drafted, legally binding non-disclosure agreement (NDA) allows both objectives to be achieved. By governing how confidential information is shared and used, an NDA enables meaningful due diligence while preserving each company’s competitive position.

Why NDAs Are Essential in the M&A Process

An NDA should be one of the first agreements executed once merger or acquisition discussions begin. It establishes trust between the parties, defines clear rules for handling sensitive information, and ensures that proprietary data is not misused or disclosed prematurely.

The primary purpose of an NDA in the M&A context is to ensure that confidential information exchanged during due diligence:

• Remains protected from disclosure to third parties;
• Is used solely to evaluate the proposed transaction;
• Is not exploited for improper purposes, such as soliciting employees or interfering with customer or supplier relationships.

By addressing these risks early, an NDA helps prevent significant legal and competitive harm.

Defining Confidential Information

To be effective, an NDA must contain a clear and comprehensive definition of what constitutes confidential information. Overly broad or vague language can expose a company to unfavorable interpretations and weaken enforcement.

A well-drafted NDA should specifically identify categories of protected information, including:

• Financial information – Historical financial statements, projections, budgets, cost structures, revenue breakdowns, pricing models, and bidding information.
• Strategic and operational data – Marketing plans, sales data, go-to-market strategies, competitive positioning, market research, and internal processes.
• Products and intellectual property – Current and future products, patents, trade secrets, software, research and development materials, product roadmaps, engineering drawings, and technical specifications.

Careful itemization reduces ambiguity and strengthens the enforceability of the confidentiality obligations.

Exclusions From Confidential Treatment

An NDA should also clearly identify information that is not considered confidential. Typically excluded are:

• Information that is already publicly available or later becomes public through no fault of the receiving party;
• Information the receiving party already possessed prior to disclosure;
• Information independently developed by the receiving party without use of the disclosed materials.

These exclusions help ensure that confidentiality obligations are fair and legally defensible.

Use Limitations and Duration of the NDA

An NDA should narrowly limit the use of disclosed information to evaluating the potential merger or acquisition. Confidential information may not be shared simply to educate the receiving party about the disclosing party’s operations or for any unrelated business purpose.

The duration of the NDA depends on the outcome of the negotiations:

• If the transaction closes
  The NDA is typically replaced by new confidentiality provisions governing officers and employees of the combined entity.
• If negotiations fail
  Confidentiality obligations generally continue indefinitely.

In the event of unsuccessful negotiations, the NDA should also require:

• The return or destruction of all confidential materials;
• Continued non-disclosure to third parties, except where disclosure is legally required or expressly authorized;
• Recognition that disclosure does not transfer ownership or diminish the disclosing party’s rights in the information.

Why Careful Drafting Matters

A well-drafted NDA signals that both parties are serious, prepared, and professionally advised. It sets the tone for negotiations and provides essential legal protection throughout the M&A process.

The securities attorneys at Corporate Securities Legal LLP bring decades of experience advising clients on NDAs and complex M&A transactions. Their disciplined approach and industry knowledge help clients protect their interests while advancing deals efficiently and strategically.

Contact Corporate Securities Legal LLP to ensure your NDA is carefully structured, enforceable, and aligned with your broader transaction goals.