What is an NDA and why is it used early in M&A?

  • Posted by: Frédérique Pardon

An NDA, or non-disclosure agreement, is a legally binding contract that prevents the parties involved in an M&A process from sharing confidential information with anyone outside the deal. In mergers and acquisitions, it is signed early, typically before any meaningful financial or operational data changes hands, because the information exchanged during deal exploration is sensitive enough to cause real harm if it reaches the wrong people. The sections below answer the most common questions about how NDAs work in M&A transactions.

What information does an NDA protect in an M&A deal?

An NDA in an M&A context protects any confidential information shared between a buyer and a seller during the deal process. This typically includes financial statements, forecasts, customer lists, contracts, intellectual property, pricing structures, employee data, and strategic plans. Essentially, anything that would give a competitor or the public an advantage if disclosed falls under its protection.

The scope of protection matters because M&A conversations require both parties to share information they would never reveal in a normal business relationship. A seller must open its books to allow a buyer to assess value. A buyer may share its acquisition strategy or financing structure. Without an NDA in place, either party could use that information opportunistically, whether to undercut a competitor, approach customers directly, or walk away from the deal with valuable intelligence at no cost.

Most M&A non-disclosure agreements define confidential information broadly and then carve out specific exceptions, such as information that is already publicly available, independently developed by the receiving party, or disclosed by a third party without a confidentiality obligation. Those exceptions are worth reading carefully, because they define the boundaries of what is actually protected.

Why is an NDA signed before due diligence begins?

An NDA is signed before due diligence because due diligence is the phase where the most sensitive information is exchanged. Before a buyer can validate a target’s financial health, operational performance, or strategic fit, the seller needs assurance that the information it shares will not be misused. The NDA creates that legal assurance before the data room opens.

From a practical standpoint, due diligence involves sharing detailed financial statements, management accounts, customer contracts, and sometimes employee information. This is precisely the kind of information that could damage a business if it reached a competitor, a customer, or the press. Signing the NDA first establishes the legal framework that governs everything that follows.

There is also a trust dimension. Signing an NDA signals that both parties are serious about the process. It sets a professional tone and demonstrates a willingness to engage responsibly. In deals where the target is still operating as an independent business, this matters: management teams are often cautious about sharing internal data, and the NDA gives them a defensible reason to do so.

What are the key clauses in an M&A non-disclosure agreement?

The key clauses in an M&A NDA define what is protected, who is bound by the agreement, how the information may be used, and what happens when the deal does not proceed. Understanding these clauses helps both parties enter the process with clear expectations.

  • Definition of confidential information: Specifies what falls under the agreement and what is excluded, such as publicly available data or information already known to the receiving party.
  • Permitted use: Restricts the receiving party to using the information solely for evaluating the transaction, not for any other commercial purpose.
  • Permitted disclosures: Identifies who within the receiving party’s organization may access the information, typically limited to advisors, legal counsel, and key decision-makers on a need-to-know basis.
  • Non-solicitation: Prevents the buyer from approaching the seller’s employees or customers directly, even if the deal falls through.
  • Return or destruction of information: Requires the receiving party to return or securely destroy all confidential materials if the deal does not proceed.
  • Standstill provisions: In some NDAs, the buyer agrees not to make unsolicited bids or acquire shares in the target for a defined period.
  • Duration: Sets the time period during which the confidentiality obligations remain in force.

Not every M&A NDA includes all of these clauses, and the weight given to each will vary depending on the deal structure, the parties involved, and their respective negotiating positions. Legal advice is essential when reviewing or drafting these agreements.

What’s the difference between a mutual and a one-way NDA in M&A?

A mutual NDA binds both parties to confidentiality, meaning both the buyer and the seller agree not to disclose each other’s information. A one-way NDA, also called a unilateral NDA, only binds the receiving party, typically the buyer, who receives confidential information from the seller without sharing equally sensitive information in return.

In most M&A transactions, the early stages involve a one-way NDA. The seller is the party with sensitive operational and financial data, and the buyer is the one requesting access to it. The obligation flows in one direction: the buyer agrees to keep what it learns confidential.

Mutual NDAs become more relevant when both parties are sharing sensitive information of comparable weight. This can occur in merger discussions between companies of similar size, in joint venture negotiations, or in situations where the buyer is also sharing proprietary financing structures, strategic plans, or technology that the seller could exploit. In those cases, a mutual NDA reflects the balanced nature of the information exchange more accurately. Choosing the right structure is not just a formality; it shapes the obligations and protections each party carries into the deal.

What happens if an NDA is breached during an M&A process?

If an NDA is breached during an M&A process, the party that disclosed or misused confidential information can be held legally liable. The consequences typically include injunctive relief to stop further disclosure, financial damages to compensate for losses caused by the breach, and in some cases, specific performance orders requiring the breaching party to comply with the agreement.

The practical impact of a breach can be significant. If a buyer leaks that a company is for sale, it can unsettle employees, alarm customers, and trigger unwanted media attention. If proprietary financial data reaches a competitor, the damage may be difficult to quantify but very real. Courts can issue injunctions quickly to prevent ongoing harm, which is one reason why NDA enforcement is taken seriously even before a full damages claim is pursued.

That said, proving a breach and quantifying damages is often complex. The harmed party needs to demonstrate that the information was genuinely confidential, that it was shared in breach of the agreement, and that the disclosure caused measurable harm. This is why the definition of confidential information and the permitted use clause matter so much when the NDA is drafted. Vague language creates room for dispute; precise language makes enforcement more straightforward.

When does an NDA expire in an M&A transaction?

An NDA in an M&A transaction typically expires after a defined period stated in the agreement, commonly one to three years from the date of signing. The duration is negotiated between the parties and reflects how long the confidential information is likely to remain sensitive. Some NDAs include perpetual obligations for specific categories of information, such as trade secrets.

The expiry date is separate from the outcome of the deal. Whether the transaction closes, falls apart, or is never formally pursued, the NDA obligations remain in force until the agreed term ends. This is important for sellers to understand: a buyer who walks away from the deal is still bound by the confidentiality obligations for the duration of the agreement.

In practice, the duration should match the sensitivity of the information shared. A company’s five-year strategic plan or a proprietary customer database may remain commercially sensitive for years. A snapshot of last quarter’s revenue figures may lose its sensitivity much faster. Aligning the NDA term with the actual shelf life of the information is a detail worth negotiating rather than accepting as a standard clause.

How Greyt supports you through the M&A process

Navigating an M&A process involves much more than signing an NDA. Once confidentiality is in place, the real work begins: validating assumptions, assessing financial quality, and making sure the deal actually creates value rather than just closes. That is where we come in.

We guide companies through M&A from a CFO perspective, which means our focus is always on whether a deal should happen, not just whether it can. Our approach is structured across five phases, from an initial Finance Maturity Assessment that establishes deal readiness, through strategy, evaluation, transaction execution, and post-merger integration. Concretely, we help with:

  • Assessing financial quality and deal readiness before the process begins
  • Defining a clear investment thesis and target profile
  • Independent validation of financial assumptions and risk exposure
  • Managing due diligence, valuation, and negotiation with discipline
  • Post-closing integration to ensure the deal delivers what was promised

Whether you are preparing for an acquisition, exploring a divestment, or approaching an exit, we work alongside your team as a financial partner, not just an advisor. Get in touch to talk through where you are in the process and how we can support you.

Frequently Asked Questions

Do I need a lawyer to draft or review an M&A NDA, or can I use a standard template?

While templates can serve as a useful starting point, an M&A NDA should always be reviewed by a lawyer before signing. The specific clauses — particularly around the definition of confidential information, permitted use, standstill provisions, and duration — carry real legal weight, and a poorly worded template may leave critical gaps in protection. The cost of legal review at this stage is minimal compared to the potential exposure from an agreement that does not hold up under scrutiny.

Can an NDA stop a potential buyer from using what they learned to compete against us if the deal falls through?

An NDA limits how a buyer can use the information they received, restricting it to evaluating the transaction. If the deal falls through and the buyer uses that information to compete — for example, by approaching your customers or replicating a proprietary process — that would likely constitute a breach of the permitted use clause. However, enforcement requires demonstrating that the information was genuinely confidential and that the buyer's actions were directly linked to what they learned during the process, which is why precise drafting of those clauses matters from the outset.

At what point in an M&A process is the NDA typically signed — before or after initial conversations?

In most M&A processes, the NDA is signed after initial high-level conversations have taken place but before any meaningful confidential information is shared. Early introductory discussions — such as a general expression of interest or a broad overview of the business — can often happen without one. The NDA is typically executed once both parties have established a genuine intent to explore the deal and are ready to move into information sharing, usually ahead of the management presentation or the opening of a data room.

What is a 'standstill' clause in an M&A NDA, and should I always insist on one?

A standstill clause prevents the buyer from making unsolicited bids for the target company or acquiring its shares in the open market for a defined period, typically six to twelve months. It is particularly relevant for publicly listed targets, where a buyer could theoretically use the access granted during due diligence to build a stake or launch a hostile approach. For private company transactions, standstill provisions are less common but can still be worth negotiating if there is a concern that a buyer might use the process to position themselves advantageously without completing the deal.

What's the most common mistake sellers make when signing an NDA in an M&A process?

One of the most common mistakes is accepting a broadly worded NDA without scrutinising the exceptions to confidentiality. Carve-outs for information that is 'independently developed' or 'already known' to the buyer can be written so loosely that they significantly weaken the agreement's protection. Sellers should also pay close attention to the permitted disclosures clause — specifically, who within the buyer's organisation is allowed to access the information — to ensure it is limited to those with a genuine need to know rather than left open-ended.

Does signing an NDA commit either party to completing the deal?

No — an NDA is a confidentiality agreement, not a commitment to transact. Signing one does not obligate either party to proceed with the deal, negotiate in good faith beyond what is explicitly stated, or reach any particular outcome. It solely governs how confidential information shared during the process must be handled. Both parties remain free to walk away at any stage, subject to any other separate agreements — such as a letter of intent or exclusivity agreement — that may have been signed alongside or after the NDA.

How should we handle confidential information shared verbally during M&A discussions — is that covered by the NDA?

Verbal disclosures can be covered by an NDA, but only if the agreement is drafted to include them. Some NDAs limit protection to written or documented information, which can leave verbal exchanges — such as those in management presentations or strategy discussions — unprotected. To close this gap, the NDA should explicitly state that confidential information includes oral disclosures, and ideally require that verbal information be confirmed in writing within a specified timeframe after it is shared. This is a detail worth checking before any substantive conversations take place.

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