Deal Process
Neutral
Essential
A, X
Pre-LOI
Completed
The NDA: What It Actually Protects Before You Open Your Books
Understand what a Non-Disclosure Agreement actually covers before you share financials with a buyer, what it doesn't protect against, and the clauses founders most often get wrong.
The 30-Second Definition
A Non-Disclosure Agreement (NDA), also called a Confidentiality Agreement, is the first document signed in almost every M&A process. It is a legally binding contract that restricts how a prospective buyer can use and share information disclosed during a transaction, before any commercial terms have been agreed.
Why It Comes First
Before a seller shares an Information Memorandum, management accounts, or customer lists, the prospective buyer needs to be legally bound not to misuse that information. No serious seller should send sensitive financial or commercial detail to a buyer who hasn't signed one — and no serious buyer should expect to receive it without signing.
What It Actually Covers
A properly drafted NDA includes: a clear definition of what counts as confidential information, a restriction on use (evaluation of the proposed transaction only, nothing else), non-circumvention provisions preventing the buyer from approaching the seller's customers, suppliers, or staff directly, a non-solicitation or non-poach clause covering employees, a defined term (typically two to three years), the governing law, and remedies available if the agreement is breached, usually including the right to seek an injunction.
Where Founders Get It Wrong
Treating the NDA as a piece of boilerplate is the most common mistake. Non-circumvention and non-solicitation terms are routinely left generic when they should be tailored to the specific risk — a competitor buyer poses very different risks to the seller's customer relationships than a financial buyer does.
It's also common to overlook whether the buyer's advisers and any co-investors are properly bound by the same terms, and to send the Information Memorandum before a signed NDA has actually been returned, under time pressure, rather than process discipline.
What It Doesn't Do
An NDA does not stop a buyer walking away from a deal after seeing the numbers — it only governs how they can use and share what they've seen. It is not a substitute for being selective about who is given access to sensitive information in the first place, particularly in a competitive process with multiple parties.
GRAX Connection
The NDA sits at the very start of both the Acquire and Exit legs. Before any competitive tension exists between buyers, the NDA is what preserves it — by ensuring information doesn't leak to competitors, customers, or staff before a seller is ready for them to know.
This entry is for general information only and does not constitute legal, financial, or tax advice. Founders should take specific professional advice before acting on any of the points covered here.
