Non-disclosure agreements (NDA) or confidentiality agreements are often the first legal agreement that any party to a sale or acquisition will be asked to sign. At the early stages of a sale, a prospective buyer will usually request a great deal of information about a business which will be, by its very nature, sensitive and confidential. Indeed, the mere fact that the prospective parties are discussing a potential sale at all could have a damaging effect on the business, its employees and key customers or suppliers unless the process is kept confidential and the sale is announced at the appropriate time as part of a managed process.
It is for these reasons that a seller should ask a prospective buyer to sign a non-disclosure agreement as soon as possible.
In an NDA, a seller will usually agree to provide certain confidential information to a buyer and its professional advisors. It may also provide limited access to certain key employees or advisors of the seller. In return the buyer agrees to keep such information and the fact that parties have entered into discussions with a view to a potential sale, confidential.
It should be stressed that signing an NDA cannot guarantee such confidential information is not disclosed. If confidential information is disclosed publically in breach of the terms of a confidentiality agreement, the damage done to the business as a result may never be undone. No court injunction can make public information secret again and the recovery of damages in such circumstances may well be an inadequate remedy.
However, it is still recommended that a seller always protects itself by having a potential buyer sign a confidentiality agreement. Not only will it act as a disincentive to a buyer to misuse any information it receives, it sets out a clear structure and process by which information and access to key personnel will be regulated.