Quick Answer
A confidentiality agreement (also called a non-disclosure agreement or NDA) is a legally binding contract signed by prospective buyers before they receive sensitive information about a target company in an M&A transaction. The NDA restricts how the buyer can use the information, prohibits disclosure to third parties, and often includes non-solicitation and standstill provisions. It is typically the first legal document signed in any M&A process and sets the foundation for the entire due diligence phase.
What Is a Confidentiality Agreement in M&A?
In the context of mergers and acquisitions, a confidentiality agreement is a contract between the seller (or target company) and a prospective buyer that governs the use and protection of confidential information shared during the due diligence process. The seller typically requires the NDA to be signed before releasing any non-public information — such as financial statements, customer lists, employee data, and strategic plans — to a potential acquirer.
NDAs serve several purposes in M&A: they protect the seller’s competitive position if the deal falls through, they prevent buyers from using the information to compete, and they establish the legal framework for what happens to confidential materials after the process concludes. For buyers, the NDA defines the scope of what they can share with their advisors, lenders, and internal evaluation teams.
Key Provisions of an M&A NDA
While every NDA is negotiated, most M&A confidentiality agreements include the following core provisions:
1. Definition of Confidential Information
This clause defines what constitutes “confidential information.” In M&A, the definition is typically broad and includes financial data, customer and supplier information, intellectual property, employee records, business plans, trade secrets, and any information provided in the data room or during management meetings. Some NDAs also specify what is not confidential — such as information already in the public domain, independently developed by the buyer, or received from a third party without breach.
2. Permitted Use and Non-Disclosure
The buyer agrees to use the confidential information solely for the purpose of evaluating the potential transaction. The NDA prohibits using the information for any competitive purpose, such as pricing strategy, customer solicitation, or product development. The buyer must also keep the information confidential and limit access to employees and advisors who have a “need to know” for transaction evaluation purposes.
3. Non-Solicitation Clause
Many M&A NDAs include a non-solicitation provision that prevents the buyer from hiring or soliciting the target’s employees, customers, or suppliers for a specified period (typically 12–24 months) following the disclosure of confidential information. This is particularly important for service-based businesses where the value lies in client relationships and key personnel. Sellers should ensure this clause is broad enough to cover both direct and indirect solicitation.
4. Standstill Provision
A standstill clause prevents the prospective buyer from making an unsolicited tender offer, acquiring shares in the open market, or otherwise attempting to gain control of the target outside the negotiated process. This provision is common in auction-style sale processes where the seller wants to maintain control over the timeline and bidding. Standstill periods typically range from 12 to 24 months, and some NDAs include a “fall-away” provision that terminates the standstill if the target enters into a definitive agreement with another party.
5. Term and Return or Destruction of Materials
The NDA specifies how long the confidentiality obligations last. In most M&A transactions, the term is 2–5 years from the date of signing, though obligations regarding trade secrets may survive indefinitely. The agreement also requires the buyer to return or destroy all confidential materials (including copies and electronic files) upon the seller’s request or if the buyer withdraws from the process. Some NDAs permit the buyer to retain one copy for regulatory or compliance purposes.
6. No Obligation to Proceed
This clause clarifies that signing the NDA does not obligate either party to complete a transaction. The seller retains the right to terminate discussions at any time, and the buyer is free to walk away. This provision is often paired with language confirming that only a signed definitive agreement (such as a share or asset purchase agreement) will create binding obligations to close.
Types of NDAs in M&A
There are two primary types of confidentiality agreements used in M&A:
Unilateral (One-Way) NDA
The most common type in M&A, where only the buyer agrees to maintain confidentiality. The seller discloses information, and the buyer is bound by the restrictions. This is the default in sell-side processes where the target company controls the flow of information.
Mutual (Two-Way) NDA
Both parties agree to keep each other’s information confidential. Mutual NDAs are used in merger-of-equals discussions, joint ventures, and transactions where both sides share sensitive commercial information. They are also common when the buyer is a competitor and the target wants reciprocal protection.
Common Pitfalls and Negotiation Points
Experienced M&A practitioners pay close attention to several areas where NDAs can create unintended consequences:
Overly broad definitions can restrict the buyer’s existing business operations. If the buyer is a strategic acquirer (such as a competitor), a definition of confidential information that is too broad could expose the buyer to litigation risk for activities it was already pursuing independently. Buyers often negotiate for a “residuals” clause or confirm that information retained in the unaided memory of personnel does not breach the NDA.
Non-solicitation scope can be overly restrictive for large buyers. A buyer with thousands of employees cannot reasonably prevent general hiring advertisements from reaching the target’s employees. Well-drafted non-solicitation clauses limit the restriction to employees the buyer specifically identified or interacted with during due diligence.
Standstill carve-outs are important for private equity buyers who may already hold investments in the same sector. Buyers often negotiate exceptions for passive investments below a certain ownership threshold (e.g., less than 5% of outstanding shares).
Disclosure to financing sources is essential for transactions involving debt financing. The NDA should expressly permit the buyer to share information with potential lenders, underwriters, and rating agencies, provided those parties are also bound by confidentiality obligations.
For broader guidance on the M&A process, see our due diligence checklist and our article on M&A deal closing checklists.
When Is an NDA Signed in the M&A Timeline?
The NDA is typically the first signed document in the M&A process. The typical sequence is:
- Teaser or initial outreach — The seller or its investment bank contacts prospective buyers with a high-level, non-confidential summary of the opportunity.
- NDA execution — Interested buyers sign the NDA to gain access to the confidential information memorandum (CIM) and data room.
- Indicative offer (IOI) — Buyers submit non-binding indications of interest based on CIM review.
- Confirmatory due diligence — Shortlisted buyers conduct in-depth due diligence with access to management and detailed data.
- Final bids and letter of intent (LOI) — Selected buyers submit binding or semi-binding offers.
- Definitive agreement — The parties negotiate and sign the purchase agreement.
Key Takeaways
- The NDA is the first legal document signed in an M&A process and governs all subsequent information sharing during due diligence.
- Key provisions include the definition of confidential information, permitted use, non-solicitation, standstill, and return or destruction of materials.
- Sellers should insist on strong non-solicitation and standstill clauses, especially in competitive auction processes where losing bidders have access to sensitive data.
- Buyers should carefully negotiate the scope of confidential information, standstill carve-outs, and rights to share information with financing sources.
- An NDA is not a commitment to transact — only a signed definitive agreement (such as an asset or stock purchase agreement) creates binding obligations to close.
- Work with experienced M&A counsel to ensure the NDA is tailored to the specifics of the transaction, including industry norms, competitive dynamics, and the structure of the deal process.
