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Buyers conducting due diligence in an M&A transaction need access to the target’s material agreements. Some of these agreements may have confidentiality provisions prohibiting them from being shared with third parties, and a recent Business Law Today article by Glenn West highlights a New York trial court decision that suggests that uploading these agreements to M&A data rooms without understanding the obligations imposed by those provisions is a risky approach.

In AriZona Beverages v. EVERCORE, No. 608480/2024 (Sup. Ct., Nassau Cty,. Aug. 27, 2024), the plaintiff successfully obtained a court order requiring a target’s investment banker to disclose the identity of all parties who accessed a copy of a supply agreement. This excerpt from Glenn’s article summarizes the Court’s decision:

The court found that AriZona Beverages had “brought forth sufficient information to confirm that the Can Supply Agreement is crucial to [AriZona Beverages’] business and the breach of the requirement of non disclosure permitting other part(ies) to obtain confidential and proprietary information must be addressed through the disclosure sought herein.” In addition, the court specifically found that the acts complained of by AriZona Beverages “could conceivably form the basis of a cause of action including, but not limited to, tortious interference with contract.”

Accordingly, the court ordered Evercore “to disclose the identity of each entity or individual to whom it provided access to the data room . . . [or] supplied a copy of the Can Supply Agreement or otherwise disclosed its terms.”

The article notes that bottom line is that uploading the supply agreement and sharing it on the data room would be a breach of the terms of most confidentiality provisions, and the plaintiff has the right to know who accessed the agreement in order to determine its potential damages.

The article also points out that decision provides a reminder that it isn’t only buyers who need to do due diligence on the terms of material agreements – potential targets need to understand their own contractual confidentiality obligations before sharing information about material contracts with prospective buyers. He also notes that the decision suggests that in these situations, relying on confidentiality obligations imposed on potential buyers through NDAs with the target aren’t sufficient to protect targets from breach of contract claims for sharing confidential agreements with those parties.

– John Jenkins