A Non-Disclosure Agreement (NDA) is an important document in an M&A transaction that aims to protect confidential and sensitive information of the parties involved in the negotiation.
Keep in mind, always, that sharing information means handing over numbers, studies, results, strategies, and many times, years and years of hard work. Therefore, establishing clear rules is essential for the security of the parties. Some strategies for negotiating an NDA in the context of an M&A include:
1. Clear and precise terms
The NDA should include clear and precise terms about what information is considered confidential, how this information will be protected, and what the consequences are in case of breach of the agreement. Note that if there is no clear definition of what is confidential information, we will have a scenario where everything will be considered confidential information, which in practice makes it very difficult to charge a possible breach of the NDA. "If everything is confidential, nothing is confidential".
2. No grooming
The non-intrusion clause is a way to protect the interests of the parties involved in the negotiation. This is because in an M&A transaction, sensitive and confidential information is shared between the parties. If one party tries to hire an employee or customer of the other party during or after the transaction, this can be detrimental to the company that has lost the employee or customer and creates a potential conflict of interest.
In addition, the no-solicitation clause can help prevent confidential information from being shared with other competing companies. If one company tries to recruit an employee from the other company, that employee may share confidential information during the recruitment process.
3. Non-competition
his clause establishes that the party receiving confidential information during the negotiation will not compete with the other party for a certain period of time after the transaction is concluded. It can be established a limitation of space (e.g. non-compete only within the State of São Paulo) or area (e.g. non-compete only within the sales sector of a certain product).
In an M&A transaction, sensitive and confidential information is shared between the parties, including information about products, processes, business strategies, and other critical aspects of the company. Eventually, the company that harvested the information may use the target's information to leverage itself, clearly causing harm to the company that shared the confidential information as well as creating a potential conflict of interest.
4. Exclusivity and preference
This clause states that the party that is sharing confidential information with the other party will grant exclusivity in the negotiation and preference in the purchase to the other party.
In other words, the exclusivity and preference clause means that the party receiving confidential information will have priority in the negotiation over other parties interested in acquiring the company. This is important because in an M&A negotiation competition can be intense, and several parties may be interested in acquiring the company. However, it is important to note that the exclusivity and preference clause should not be used as a way to unduly restrict competition in the market. The clause should be drafted in a way that balances protection of the interests of the parties involved with freedom of competition in the marketplace.
5. Clean team
This clause establishes the creation of a "clean" or "neutral" team composed of representatives of both parties, who will have access to confidential and sensitive information of the company being acquired and who must, in addition to maintaining confidentiality, interpret the information received without disclosing the data.
Confidential information cannot go beyond the clean team, i.e. neither party can share information with other people that have not been selected for the clean team, even if they are other people from "your" company or team. The "clean" team is responsible for reviewing and analyzing the financial, business, legal, and other relevant information of the company being acquired, and should prepare the report in a way that serves to evaluate the company, without, however, disclosing exact figures and data. In the context of this clause, the responsibility for sharing confidential information is personal.
The clean team is recognized by CADE (Administrative Council for Economic Defense of Brazil) as a valid and effective guideline for sharing confidential information. More information can be seen on CADE's own website: https://cdn.cade.gov.br/Portal/centrais-de-conteudo/publicacoes/guias-do-cade/gun-jumping-versao-final.pdf