Confidentiality in Mergers & Acquisitions: When, Who, and What

Confidentiality in Mergers & Acquisitions: When, Who, and What

Mergers and acquisitions (M&A) are increasingly commonplace in business, and 2014 was the largest year for M&A activity since the 2007-2008 recession. Tracking the rise in M&A deals, more and more companies have begun signing confidentiality/non-disclosure agreements before negotiations begin. In these agreements, all parties to the proposed M&A deal agree to keep confidential specific proprietary information and to only use the information disclosed to them during negotiations for limited purposes. In this article, we discuss when a confidentiality agreement is advantageous or necessary, who the agreement should apply to, and what information it should protect.


In today’s information age, in which much of a company’s competitive advantage depends on proprietary information such as patents, copyrights, and secret operations and finance data, M&A negotiations present a difficult problem. On the one hand, companies interested in M&A need to make sure that any M&A deal is a good one, but on the other, they want to keep proprietary information secret. And bringing another company closer than arm’s length is rarely a prudent strategy. This is especially the case when competitors are involved in an M&A deal. For this reason, sometimes before discussions about M&A even initiate, the parties will sign a confidentiality agreement.

In addition to legitimate risks involved in sharing competitive information, confidentiality is desirable because it may be necessary to ensure the M&A deal goes through without great interference from other third parties. Such is the case, for example, when increased exposure of a proposed deal could affect stock price, rendering an acquisition much more expensive for the buyer or when knowledge of an impending sale could lead to hostile takeover risks.

Thus, the general rule truly is that confidentiality agreements should always be signed before any information is shared between parties to an M&A deal.


Generally speaking, confidentiality agreements extend to the agents of both companies (and the companies, themselves) involved in the M&A negotiations. Any and all employees that may come into contact with any shared information between the companies should be included in the scope of the confidentiality agreement. This also tends to include lawyers, consultants, accountants, and other advisors. To limit liability for disclosure by these additional parties, which may be separate from the companies involved, the companies may require separate confidentiality agreements.

Since under most broad confidentiality agreements, the companies involved in an M&A deal may be liable for disclosure of confidential information, the agreement should also set out specific controls on how information will be shared, to limit the risk of over-exposure of secret information. Depending on the potential financing arrangements involved, parties should also consider whether or not financing sources may have access to information and whether or not they should sign separate confidentiality agreements. The best practice is to have all third parties, over which the companies have less control, sign separate confidentiality agreements. This limits the companies’ respective liability for any unauthorized disclosures by the third parties.


Under the ABA’s Model Confidentiality Agreement, confidentiality agreements usually extend to all trade secrets and all other information concerning the business and affairs of the companies involved that is shared between them. This is a very broad definition of confidential information, narrowed usually by the exception that it does not apply to information already public or available to the companies involved. Confidential information can also include any information regarding the negotiation, itself, as well. This is especially important when disclosure of even negotiations could threaten the deal.

Confidentiality agreements should also very carefully describe the restricted use of the confidential information shared. Typically, use is strictly limited to evaluating the M&A deal and to not use any of the confidential information shared in any way that might be detrimental to the other company. However, terms like these should be considered in view of the potential long-term goals of the companies involved. If, for example, Company A wants to acquire Company B, either through agreement or purchase of ownership of B, then binding itself to only use confidential information for the specific deal at hand or so as not to detriment B may hinder this long-term goal if the M&A deal falls through.

Therefore, the “what” of a confidentiality agreement is extremely dependent on the contextual factors of the negotiations and the needs and goals of the companies involved.

If you plan to be involved in an M&A deal, you should work with an attorney to structure a confidentiality agreement in accordance your specific needs and goals. This article was sponsored by Vlodaver Law Offices, LLC, an experienced business solutions and transactions law firm in the Twin Cities. If you would like a free legal consultation, contact us.