Before you sign an LOI or share any sensitive business information, you need a confidentiality agreement in place. Here's what to include and why it matters.
A Non-Disclosure Agreement (NDA) or Confidentiality Agreement (CA) signed before LOI negotiations that protects both buyer and seller's sensitive information. The NDA governs what information can be shared, how it must be protected, who can access it, and what happens if the deal doesn't close.
To negotiate an LOI effectively, you need to share and receive sensitive information: financials, customer lists, trade secrets, employee data. Without an NDA in place first:
Key NDA Provisions for M&A
Broadly define what's protected: financials, customer data, employee information, trade secrets, business plans, and the fact that discussions are occurring.
"Confidential Information means all non-public information disclosed by either party, including financial statements, customer lists, pricing data, employee compensation, trade secrets, business plans, and the existence of these discussions."
Specify who can see confidential information: attorneys, accountants, lenders, and key employees on a need-to-know basis. Require written agreements from all recipients.
"Receiving Party may disclose Confidential Information only to its attorneys, accountants, financing sources, and employees with a need to know, provided each agrees in writing to confidentiality obligations no less restrictive than this Agreement."
Sellers should require a non-solicitation clause preventing buyers from poaching key employees if the deal falls through. This is often heavily negotiated.
"For 24 months following termination of discussions, Buyer shall not directly or indirectly solicit for employment any employee of Seller whose identity became known through this transaction."
If the deal doesn't close, what happens to all the sensitive documents you received? The NDA should require return or certified destruction.
"Upon request or termination of discussions, Receiving Party shall promptly return or destroy all Confidential Information and certify in writing that no copies have been retained, except for one archival copy maintained by legal counsel."
Some seller-friendly NDAs include "standstill" provisions preventing buyers from acquiring stock or making public offers. Buyers should push back on these.
Warning: Standstill provisions can prevent you from making a competing offer if negotiations fail. Only accept these in competitive auction situations where required.
How long does confidentiality last? Standard is 2-3 years from disclosure, but trade secrets should be protected indefinitely.
"Confidentiality obligations shall survive for 3 years following disclosure, provided that obligations regarding trade secrets shall continue indefinitely until such information becomes publicly known through no fault of Receiving Party."
NDA vs LOI Confidentiality Clause
Many LOIs include a confidentiality provision. So why do you need a separate NDA?
Best practice: Sign an NDA first, then include a confidentiality clause in the LOI that references and supplements the NDA.
Once confidentiality is in place, the next step is your letter of intent. Have M&A counsel review it before you commit to terms.
Request LOI Review →Whether you're a buyer or seller, the NDA sets the tone for the entire transaction. Get it right from the start with attorney-drafted agreements tailored to M&A.
Acquisition Stars • acquisitionstars.com • alex@acquisitionstars.com