The Non-Disclosure Agreement (NDA) is an indispensable tool in the acquisition process. On the one hand, the seller wants to be assured of the confidentiality of his information; on the other hand, the buyer does not want to be bound by overly strict restrictions before he has had a chance to assess the value of the transaction.
This is where the NDA comes in as a tool for sharing information without restrictions, securing trade secrets and creating a favorable environment for negotiations.
Why an NDA?
The main reason, of course, is to protect trade secrets and maintain competitive advantage. During the acquisition process, a lot of sensitive business information is often shared, such as financial data, customer lists and strategic plans. An NDA ensures that this information is not disseminated without permission.
An NDA creates the necessary freedom to negotiate: once parties have agreed that confidential information is protected, it gives both parties the confidence to negotiate candidly and efficiently.
Entering into an NDA is also a form of risk management. If the non-disclosure is violated anyway, the NDA offers possibilities to take legal action and claim damages.
At what point does your NDA close?
The timing can vary depending on the specific circumstances and parties involved, but generally there are two main times when an NDA can be entered into:
- During the negotiation phase: This can give the seller a degree of protection when sharing initial information and can show the buyer that they are serious about the deal.
- For the due diligence phase: The due diligence phase is the process in which the buyer thoroughly researches company and thus in which a lot of sensitive information is shared.
Content of NDA in the acquisition process
No NDA is "one size fits all. It is therefore important to ensure that the provisions in the NDA are relevant to the specific need of the transaction. Provisions in the NDA that require customization include the following:
- Which information is considered confidential and which is not?
- What is the purpose of the NDA?
- What obligations does the recipient have, such as confidentiality, restricted use of the confidential information and what is the duration of these obligations?
- What legal steps can be taken in the event of a breach of the NDA, including damages and litigation?
Tips for business owners when using NDA
- Professional advice: Consult a legal expert to ensure that your NDA complies with legislation and legal standards.
- Prudence in sharing: Be selective when sharing confidential information and share only what is absolutely necessary to achieve the intended purpose.
- Documentation: Keep copies of all signed NDAs and document all data exchanges covered by the NDA.
- Periodic review: Review your NDAs regularly and update them as needed, such as when the nature of the information shared changes.
- Penalty clause: Include a penalty clause stipulating that if the NDA is breached, a penalty is immediately due. This prevents you from having to prove that you suffered damages and what the amount should be.
- Back-to-back: impose the obligations in the NDA on third parties that the recipient engages, by providing that the recipient remains liable for a breach of the NDA by those third parties.
