Due diligence in an M&A deal puts companies in the position of sharing some of their most closely guarded information-such as technological, trade, and business secrets-to evaluate and negotiate the transaction fully. These tips for non-disclosure agreements (NDA) will help companies maximize protection of this information.
1. Give Teeth to Non-Disclosure Provisions.
The parties must agree on a clear definition of confidential information. Providing companies should suggest a broad definition that covers all information exchanged, including any notes, interpretations and analyses. A broad definition has the benefit of reducing the providing company's transactional costs by lowering the expense of excluding irrelevant, yet confidential, information. Similarly, providers should be wary of an opposing party's effort to create exceptions to the definition of confidential information, as exceptions may lead to litigation if the deal goes south.
2. Include a Non-Reliance Provision.
A providing party may disclose information that turns out to be inaccurate. To protect the disclosing party from allegations of wrong doing, NDAs often include so-called "non-reliance" clauses, which prevent recipients from holding providers liable for misleading information exchanged outside of the scope of the NDA.
3. Modify the NDA as the Deal Evolves.
The nature of a transaction often changes as negotiations develop. If a company needs to share information the NDA did not contemplate, the company should amend the NDA to match the transaction. Otherwise, critical information will be at risk.
4. Address Compelled Disclosures.
Recipients often insist that providers waive claims for disclosures that are required by law. Any party agreeing to this waiver should require: advanced notice of the requested disclosure and cooperation in asserting legal defenses to the production. Parties should also consider specifying what "required by law" means.
5. Control Inadvertent Disclosures.
NDAs should also control how information shared between the parties is maintained by the recipient. NDAs commonly specify the time, place and manner in which the parties will share sensitive information, the individuals authorized to access it and the time and manner in which the information will be returned or destroyed. The providing party should require anyone who receives the information to sign the NDA, without exceptions.
6. Bifurcate the NDA.
Parties contemplating sharing extremely sensitive information should enter two NDAs: one for sensitive information and one for extremely sensitive information, limiting the latter to an on-site visit, without the use of technologies capable of copying the information.
7. Forbid the Solicitation of Employees.
Parties should protect against the poaching of key employees by including a provision that prohibits soliciting employees disclosed during diligence for a fixed period of time (typically 18 to 24 months).
David Kiernan is a partner at law firm Jones Day, focusing on commercial litigation. Charles Tyler is an associate with Jones Day.