September 6, 2019

NDAs: An Overview of Key Issues

HPE’s associate general counsel Saswat Bohidar recently provided some helpful insights into M&A non-disclosure agreements in this Intralinks blog. Here’s an excerpt:

M&A NDAs should be mutual, meaning both sellers and buyers should be bound to its non-disclosure and non-use clauses. We still sometimes see NDAs that only bind the buyer and not the seller, on the theory that only the seller will be sharing confidential data, and this is simply not the case.

Though certainly not to the same degree, a buyer will often share bits of confidential and strategic information. In addition, a buyer has an interest in maintaining the confidentiality of the deal process itself. Beyond this, it is important to have a relatively robust definition of confidential information, which should also include the fact that deal discussions are taking place. The parties should also have good standard carveouts for information that is not considered confidential (information that is already public, etc.).

For a buyer, particularly in tech, I would encourage a “residuals” clause that carves out small bits of information that are inadvertently “stuck” in the minds of employees, which cannot be unlearned. For a buyer, particularly a large serial buyer, I would warn against agreeing to broad non-solicits or standstills in an NDA.

These clauses can bind you from the moment you sign the NDA, even if you receive nothing more than a single teaser or banker pitch. The non-use restriction in an NDA should be enough protection against poaching, etc., but if such clauses are to be agreed, they should be clearly tied to misuse of the data actually received by a buyer or limited in scope to employees who were involved in the deal process.

John Jenkins