What Does Non-Disclosure Agreement (NDA) Mean?
A non-disclosure agreement (NDA) is also referred to as a confidentiality agreement. With reference to an M&A transaction, an NDA is usually executed by a prospective buyer prior to receiving a confidential information memorandum (CIM) in a sale process. In a less common circumstance, an NDA can also be executed by a seller after the closing of an acquisition to ensure that the details of the transaction are not disclosed to the marketplace.
Divestopedia Explains Non-Disclosure Agreement (NDA)
A non-disclosure agreement executed by a potential buyer prior to receipt of a CIM will commonly include the following provisions:
- A definition of confidential information;
- A requirement regarding holding the information confidential;
- Exceptions to confidentiality obligations including information that is already in the public domain;
- The limitations for using certain confidential information;
- The process to return the confidential information once the analysis has been completed; and
- Non-solicitation of employees (usually for a maximum period of two years).
A buyer might require a seller to sign an NDA post-closing so that terms of the deal are not revealed to the external marketplace. A buyer may not want other acquisition targets to know the purchase price, valuation multiple or types of consideration offered in prior deals. The length of this type of NDA usually does not exceed more than three years.