How Do I Sell My Company – NDAs

Many people ask us, how do I sell my company? There are many critical steps in that process; however, perhaps the most important one is a good Non-Disclosure Agreement. Most companies have Non-Disclosure Agreements or NDAs in order to share information with potential suppliers or other “partners.” However, most do not have a good M&A NDA. M&A NDAs are more specialized and cover some important items.

Before we explore what should be included in a good M&A NDA, it’s important to understand why this document is needed. The simple answer is obvious; the Company doesn’t want their data used for anything other than the exploration of a possible transaction. The less obvious reason is that the NDA is also for the benefit of the ultimate buyer. At the end of the day, the acquirer will have to face competitors and other buyers that just had a very detailed and in-depth look into the company being sold.

A good M&A NDA should cover the simple fact that none of the information revealed in the M&A process can be used for any purpose other than evaluating a potential transaction. It should also restrict the buyer from talking with customers, suppliers, employees, etc. Another important function of the NDA is to prevent potential buyers from hiring any of the employees, particularly the executives. This document should also prohibit the buyer from discussing the transaction with anyone other than the company’s advisors. It should be clear that any data shared with these other individuals is the responsibility of the buyer.

Some M&A NDAs also cover things like reps and warranties surrounding the preliminary information that is conveyed. It may also specify that the seller will cover the cost of its M&A advisor and that the buyer’s costs of exploring the transaction will remain as its responsibility.

From a seller’s perspective, the NDA should provide a reasonable layer of comfort. From a buyer’s perspective, the NDA shouldn’t be so restrictive that they don’t want to even look at the company for sale. Many buyers that are afraid of liability problems will only look at non-confidential data before proceeding. This can be detrimental to the seller’s goal of generating the highest possible bid and the best terms.

As they say, “good fences make good neighbors.” Yet, it’s important for the document to have balance between buyer and seller. Experienced M&A advisors know what to look for in an NDA. It is important that all parties consult an attorney before executing an NDA.

With a proper M&A NDA, a seller will have taken an important step in answering the complex question of how do I sell my company - NDAs.