Signing a Non-Disclosure Agreement

Entering the M&A market when you are looking to sell your business requires that you disclose all of your information including financial statements, gross margin on the products you sell, business plan, vendors, customers, and many other details that you would not disclose in nearly any other situation. Because this information is so confidential and highly classified, it is important that a few precautions are taken before disclosing the information. As part of the M&A process, a Confidential Marketing Memorandum is prepared along with a teaser letter (both of these documents have many different names depending on which banker you talk to).

The teaser letter is a document that is designed to catch an investor’s attention without giving enough information to figure out which company is for sale. The CMM is designed to give the majority of information that an investor would need prior to making an offer and beginning the due diligence phase. If any of your employees, customers, or competitors knew that your company was on the market, immediately damages could begin to accrue.

This is why the teaser letter goes out first then, if there is interest, an NDA is signed and the CMM is disclosed. The Non-Disclosure Agreement for selling your company is a document that will be prepared by your banker. This document simply states that all of the information that will be disclosed will be used solely for the purpose of exploring an acquisition.

It also states that the signer will not disclose the information to anyone else, and that if they do they will be responsible for damages. Basically, the NDA will ensure that if anyone uses the highly confidential information that the selling company discloses then that person or entity will be held liable in court and will have to compensate the seller for damages to the company.

Once the NDA is signed it is important for the seller to realize that the information can safely be disclosed. One of Deal Capital’s clients is currently undergoing the due diligence phase with a private equity group. At the time being, the client is extremely hesitant about revealing some key information that the PE group would be concerned with. Since there is an NDA in place if the PE group even entered the market that our client is in, then that group could be held liable. That is a risk that buyers understand they take on when signing the NDA so the seller need not worry about the information disclosure.

What the NDA Actually Covers—and What It Doesn’t

A well-drafted M&A non-disclosure agreement does more than recite confidentiality obligations. Standard provisions typically address several specific areas:

• Definition of Confidential Information. The NDA should define what counts as confidential—financial data, customer lists, trade secrets, strategic plans, and employee information are common inclusions. Overly narrow definitions create gaps that sophisticated buyers can exploit.
• Permitted Disclosures. Buyers are typically permitted to share confidential materials with their own advisors (attorneys, accountants, lenders) on a need-to-know basis. The NDA should specify that these third parties are bound by equivalent confidentiality obligations.
• Non-Solicitation Provisions. Many M&A NDAs include clauses prohibiting the prospective buyer from soliciting the seller’s key employees or customers for a defined period, even if no transaction occurs. This protection is particularly important for service businesses where talent and client relationships constitute core value.
• Standstill Provisions. Some NDAs—particularly in larger transactions—include standstill clauses that prevent the potential buyer from acquiring shares of the seller’s business, or from making a public offer, during the evaluation period.
• Return or Destruction of Materials. If negotiations break down, the NDA should require the buyer to return or certify destruction of all confidential materials received.

The Teaser-to-NDA Sequence in Practice

The structured progression from teaser to NDA to confidential information memorandum reflects a deliberate filtering strategy. The teaser—typically one to two pages—is distributed broadly to a curated list of prospective buyers without identifying the company. Only parties who express genuine interest and sign the NDA receive the full CIM, which contains the detailed financial, operational, and strategic information needed to form an indication of interest.

This sequencing serves the seller in two important ways. First, it minimizes the universe of parties who ever learn the company is for sale—limiting market disruption and protecting employee and customer relationships. Second, it creates a natural qualification filter: parties who will not sign an NDA signal that their interest is insufficient to proceed, which saves both sides time. Understanding the full mechanics of how M&A deal documents work—including what comes after the NDA—is covered in more depth in our overview of the functions of the acquisition agreement.

Enforceability Considerations

NDAs are only as valuable as their enforceability. Courts have historically been willing to enforce M&A confidentiality agreements, particularly when breach can be tied to demonstrable economic harm. That said, certain provisions—overly broad non-competes or poorly defined damage formulas—can be struck down, leaving sellers with less protection than they anticipated.

Working with legal counsel familiar with deal-stage agreements is essential. Bankers draft and transmit NDAs routinely, but legal review ensures the document is enforceable in the relevant jurisdiction and that the definition of confidential information is broad enough to cover the seller’s actual exposure. For sellers concerned about confidentiality in the broader context of their transaction, our sell-side preparation workflow outlines how experienced advisors structure the process to protect seller interests at each stage. If you’re ready to begin structuring your transaction with appropriate protections in place, prepare a transaction with our team.

Frequently Asked Questions

Can a buyer walk away from a deal after signing an NDA?

Yes—signing an NDA does not obligate a buyer to proceed with an acquisition. It only obligates them to keep disclosed information confidential and, if applicable, to comply with non-solicitation and standstill provisions. Either party can withdraw from discussions at any time prior to a binding agreement.

Who typically drafts the NDA in an M&A transaction?

In sell-side processes, the seller’s banker or legal counsel typically drafts the NDA. This gives the seller’s team control over the initial terms. Sophisticated buyers will often mark up the draft, so legal review of any proposed changes is advisable before countersigning.

How long does an M&A NDA typically remain in effect?

Most M&A non-disclosure agreements have a term of one to three years. Some provisions—particularly those covering trade secrets—may survive indefinitely. The appropriate term depends on how long the disclosed information retains commercial sensitivity.

Should the NDA cover verbal disclosures as well as written ones?

Yes. A well-drafted NDA should explicitly cover information disclosed in any form—written, oral, electronic, or visual—to prevent a buyer from arguing that something communicated verbally in a management meeting falls outside the agreement’s scope.