Information Exchange / Non-Disclosure Agreement (NDA)

A Non Disclosure Agreement (Confidentiality Agreement or Non-Disclosure Agreement "NDA") will be the first document signed with potential buyers. You can have multiple parallel NDAs if you are negotiating with several potential buyers. At this state, buyers rarely try to limit the company’s right to negotiate with other buyers. If a buyer does try to introduce a clause limiting such rights, you can easily remove it.

Regardless of how many NDAs are signed this type of contract does not give sellers any serious protection against the misuse of information. Legally, proving the breach of NDA is almost impossible. However, the process of harmonization of some positions within the NDAs can help sellers understand the decision-making process and chain of command within the potentiual buyer.  One trick would be to request a harmless change in the terms of the NDA.  If your request creates a lot of correspondence back and forth it may mean that the person you are dealing with is not seniour enough within the organization.

When negotiating ith a large corporation, the most important point after signing the NDA is that, in case of a breach of the NDA by the seller, the buyer may have a legal recourse to exit talks during the final stages without any consequences to themselves and no compensation to the seller for any expenses incurred by the seller during the sales process.

If your lawyers or bankers have not indicated this risk to you and spent time discussing the standard conditions of the NDA, perhaps it makes sense to consider hiring more experienced lawyers and bankers.

Example of a long non-disclosure agreement (NDA) in English

Example of a short non-disclosure agreement (NDA) in English

Informational Requests

After signing the NDA, the sellers will receive a request for information from the potential buyer. The sellers can assess the real intentions of the potential buyer based on the focus of the information requested. After receiving this request for information, the seller then has to decide how to answer. If the seller believes the primary informational request is excessive , it is acceptable practice to ask for clarifications or provide only partual data. 

It is very likely that the seller will be asked to provide financial data from the last few years, financial forecast, information on operational expenses and staff, and detail data of assets and forecasted investments. This data is necessary for the buyer to estimate the value of the company and prepare for negotiations.

If the focus of the informational request is mostly customer data, clients list, technology, or other points not directly related to the calculation of the company’s value, the sellers should be concerned.  In this case, the seller should request a clarification on the informational request either themselves or through their advisors/bankers.

Be sure to remember that any false information provided by the seller during the negotiation may be the cause of claims against them in the future. Therefore, it is necessary to document all correspondence with potential buyers, including a list of all the information provided, the date and time, and links to primary sources. If possible, it is desirable to obtain written confirmation from the potential buyer that the data was received. In large transactions, it makes sense to think about utilizing a specialized “data room” to maintain records on the process of providing information. For smaller transactions, it is sufficient to simply keep electronic records on sending and receiving data.