NDA (Non-Disclosure Agreement)

The NDA (also called a Confidentiality Agreement or CA) is the gatekeeper document. Before any sensitive information flows from seller to prospective buyer — before the CIM, before financials, before customer lists — the buyer signs an NDA. The NDA restricts how the buyer can use the information: typically, only to evaluate the specific transaction, and not to share with third parties, use competitively, or poach employees/customers.

How it actually works: Typical NDA provisions: (1) definition of confidential information — broad in sellers' NDAs (covers everything), narrower in buyers' preferred versions (carves out public info); (2) permitted use — only for evaluating the transaction; (3) non-use — cannot use info for competitive purposes; (4) non-disclosure — cannot share with third parties beyond defined representatives; (5) representative obligations — representatives bound by same confidentiality; (6) non-solicit — cannot solicit target employees/customers based on info (often 12-24 months); (7) return/destruction — must return or destroy info if deal doesn't proceed; (8) term — typically 2-5 years; (9) injunctive relief — right to court injunction for breach; (10) governing law and forum.

NDAs are usually mutual (both parties agree to protect each other's info) rather than one-way, especially in strategic buyer situations where both sides may exchange sensitive data. For private equity and financial buyers, one-way NDAs (only buyer protects seller info) are common since the buyer isn't sharing their own confidential info.

In auction processes, sellers typically use a standard NDA form that all bidders sign. Negotiating the NDA extensively is usually a bad signal — bidders who fight terms at NDA stage often are problematic through the whole process. Most sellers accept modest edits but reject material concessions.