Key Takeaways

  • A non disclosure agreement (NDA) for due diligence protects sensitive business information shared during mergers, acquisitions, or investment reviews.
  • NDAs may be mutual (both sides share confidential data) or one-way (only one side discloses information).
  • Critical NDA elements include definitions of confidential information, exclusions, return or destruction obligations, term, and scope.
  • Due diligence NDAs often address common pitfalls such as overly broad definitions, long survival periods, and access rights for affiliates, advisors, or financing sources.
  • A good NDA sample for due diligence also clarifies remedies, jurisdiction, and disclosure exceptions such as legally compelled disclosure.
  • Careful drafting is necessary to ensure the NDA is tailored to M&A or investment contexts, not just copied from generic templates.

A confidentiality agreement for due diligence purpose is an agreement between two or more parties to keep something confidential for the purpose of due diligence.

A Guide to Nondisclosure Agreements For Mergers And Acquisitions

During a merger and acquisition transaction, proprietary and confidential information typically must be shared with the party that is acquiring or merging with the other company. Examples of this information include important contracts and financial details. However, sharing this information is risky. In order to do so safely, it's important to be sure that the other party involved in the transaction is bound to certain terms before receiving the confidential information. They should agree to respect the information provided and not use it to the detriment of the party disclosing it.

One of the most common ways to protect confidential information is to require all involved parties to sign a nondisclosure agreement, also referred to as an NDA or confidentiality agreement. Although NDA agreements are used frequently, and many people who enter into legal agreements regularly have standard forms, these agreements include critical wording and terms that shouldn't be considered to be boilerplate. An NDA is a universally binding contract, which sets it apart from a term sheet or a letter of intent. Therefore, all parties need to be on alert for potential traps or nonstandard provisions that may be included.

Additionally, all involved parties must make sure that the negotiated NDA is suitable for the type of transaction in which they are engaging. An NDA that is part of a merger and acquisition transaction may contain different language than what would be included in a standard business NDA.

Common NDA Pitfalls in Due Diligence

When reviewing a non disclosure agreement sample for due diligence, parties should watch for potential pitfalls that may create unnecessary risk:

  • Overly broad definitions: If “Confidential Information” is defined too broadly, even publicly available or independently developed data could be restricted, which may create compliance challenges.
  • Lengthy survival terms: An NDA that requires confidentiality obligations for an indefinite period may be impractical. Typical M&A NDAs set obligations for 2–5 years.
  • Access to affiliates: Buyers often want to share information with investors, advisors, or subsidiaries. If not properly drafted, this can result in unauthorized disclosure.
  • Use restrictions: Some NDAs prohibit using confidential information for competitive purposes. Sellers must ensure these clauses do not unintentionally restrict the buyer’s business after the deal falls through.

Mutual Versus Nonmutual NDAs

There are two main types of non-disclosure agreements:

  • One-way agreements.
  • Mutual agreements.

A one-way agreement would be used if Party A will share confidential information with Party B, but Party B won't share any confidential information with Party A. A mutual NDA is used in situations when all involved parties may be sharing confidential information with one another.

In many cases, a mutual DNA form offer by one party is based on a standard NDA that may not be tailored to the context of a merger or acquisition. Although the idea of using a mutual NDA form is appealing, sellers involved in mergers and acquisitions tend to shy away from using this form if they won't receive any confidential information from the other involved party.

A one-way NDA is designed to offer protection to the disclosing party, often the seller in a merger and acquisition transaction. Most of the critical components included in an NDA exist to benefit the seller in the transaction. During the negotiation process of an NDA, the seller often has more bargaining leverage. This is especially true when a seller sends out multiple NDAs during the sales process. Many of the important issues end up being decided in a way the benefits the seller. Buyers must focus on the aspects of the NDA that are most important when negotiating these terms.

Key Clauses in a Due Diligence NDA

A well-drafted non disclosure agreement sample for due diligence typically addresses several specific clauses:

  1. Purpose Limitation – Confidential data may only be used to evaluate the potential transaction.
  2. Return or Destruction Obligation – Upon request or termination of discussions, the receiving party must return or securely destroy all confidential materials.
  3. Compelled Disclosure Exception – Allows disclosure if required by law, but obligates notice to the disclosing party.
  4. Remedies for Breach – Injunctive relief is often included, recognizing that monetary damages alone may not be sufficient.
  5. Governing Law and Jurisdiction – Establishes where disputes will be resolved.

These clauses balance the disclosing party’s need for protection with the receiving party’s need for practical flexibility.

The Important Elements of NDAs

The most important elements an NDA include:

  • A definition if what is considered to be confidential.
  • A description of all involved parties.
  • An obligation to destroy or return any confidential information provided when the party disclosing the information requests it.
  • What is excluded from being treated as confidential.
  • The agreement term.
  • The scope of the obligation for confidentiality by the party receiving the confidential information.

Tailoring NDAs for M&A Due Diligence

NDAs used in mergers and acquisitions require tailoring beyond standard business confidentiality agreements. For example:

  • No-solicitation provisions: Sellers often include restrictions preventing buyers from soliciting key employees or customers if the deal does not close.
  • Standstill agreements: In some cases, NDAs prevent potential buyers from making hostile takeover attempts.
  • Data room access protocols: Agreements may specify how confidential data rooms are managed, including electronic safeguards and audit rights.

Customizing these provisions ensures that the NDA aligns with the risks of the specific transaction and avoids reliance on a generic template.

The Parties to the Agreement

When drafting an NDA, it's best to start by including a detailed description at the beginning that establishes the involved parties. If only one party is providing confidential information to another party, you can refer to the disclosing party and the receiving party, or the recipient.

One complex aspect of an NDA is whether any other individuals or businesses should be included in the agreement to keep information confidential. As you determine who should be included, consider if the recipient of the confidential information expects to show the information to:

  • Partners.
  • Affiliated companies.
  • Financing sources.
  • Agents.
  • Advisors, such as accountants or counsel.

If any of these apply, consider including the third parties in the NDA or include a mechanism that binds the third parties to the NDA.

Third-Party Access and Advisors

In due diligence, it is common for receiving parties to involve outside advisors such as attorneys, accountants, or consultants. To protect the disclosing party, the NDA should:

  • Explicitly extend confidentiality obligations to these advisors.
  • Require that advisors only use information for evaluating the transaction.
  • Bind financing sources and potential syndicate members where applicable.

Failing to cover third-party access can leave a significant gap in protection, as many disclosures occur through these advisors.

Frequently Asked Questions

  1. What is a non disclosure agreement for due diligence?
    It is a legal contract that ensures confidential information shared during mergers, acquisitions, or investment reviews is not misused or disclosed to unauthorized parties.
  2. How long should a due diligence NDA last?
    Typically 2–5 years, depending on the industry and sensitivity of the information. Perpetual obligations are less common and often negotiated.
  3. What is included in a non disclosure agreement sample for due diligence?
    Key elements include definitions of confidential information, purpose limitation, exclusions, remedies, return or destruction obligations, and governing law.
  4. Can advisors access information under a due diligence NDA?
    Yes, but only if the NDA explicitly permits it and binds those advisors to the same confidentiality obligations.
  5. How is a due diligence NDA different from a standard NDA?
    It is tailored to M&A or investment contexts, often including provisions like no-solicitation, standstill clauses, and data room access rules.

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