The NDA and what you get for signing it

The short version

• An NDA, or non-disclosure agreement, is a promise to keep what you learn about a business confidential.
• You usually sign one before you see the business's name, its detailed numbers or the full information package.
• Most NDAs are standard, but read them. Some include terms that matter.
• Watch for promises not to contact employees, customers or suppliers, and for promises not to hire the seller's people.
• Signing gets you the information package. It does not commit you to buy.

Why sellers ask for one

An owner's biggest fear about selling is that word gets out. Employees worry, customers hesitate and competitors take advantage. An NDA gives the owner a legal promise that you will keep what you learn private.

What you get for signing

Usually, after the NDA, you receive:

• The business's name and location.
• The information package, often a CIM, short for confidential information memorandum.
• Summary financial results.
• The chance to ask questions and, later, to meet the owner.

Lesson B5.2 covers how to read what you receive.

What to read for

Most NDAs are a few pages and fairly standard. Read them anyway. Look for:

• What counts as confidential, and for how long.
• No contact. A promise not to contact the business's employees, customers, suppliers or landlord without permission. This is normal. Follow it.
• No hiring. A promise not to hire the business's employees for a period, even if the deal does not happen.
• Return or destroy. What you must do with the information if you walk away.
• Who else can see it. Make sure your M&A attorney, CPA, lender and any advisors are allowed to see the information, under the same confidentiality.
• Anything unusual, such as fees, exclusivity or penalties. These do not belong in an NDA. Ask about them.

Signing many

Active buyers sign many NDAs. Keep a list of what you signed, when and what you received. If you walk away, return or destroy the information as the NDA requires.