Signing Non Disclosure (NDA) or Confidentiality Agreements is a very standard step when buying a business, yet I remain dumbfounded how frequently buyers air concerns about executing them.
In the twenty plus years I have been involved in buying and selling businesses, I can only recall a handful of times where an NDA was too ridiculous to sign.
Any buyer must keep in mind that every seller is worried about news leaking out that their business is for sale and it is a legitimate concern from their perspective.
While the fallout is generally not as near catastrophic as they believe it will be for employees, clients and vendors, it is, nevertheless, a sensitive subject and real issue. And so, the NDA provides then with a level of comfort.
NDAs should cover the fundamental aspects of the understanding between the parties and include the following:
- A specific term that covers the non dissemination of information – general one to two years
- The name/description/location of the business
- Language that prevents the buyer from circumventing the broker and obligates the buyer to potentially compensate the broker if they do (and many have clauses that prevent both buyer and seller from circumventing the broker or structuring a deal that would attempt to avoid paying them their commission in the event of a sale).
- The understanding that the seller will be providing information that is confidential in nature and the buyer and any “associates” of the buyer (advisors, employees, etc) must keep the information private if in fact the agreement allows the buyer to share it with those parties at all.
- The non-binding of the buyer in any way to maintain confidentiality for information that is either known to the public or readily available.
- Details how any information provided will be returned/destroyed in the event the parties do not consummate a transaction.
Those are the key elements. If the NDA covers those points and does not have anything else that concerns you, then sign the agreement.
One clause I have seen which is something to avoid is when a broker uses the one NDA to cover all businesses he/she may present to a buyer. It doesn’t make sense and is an invitation for ambiguity.
You are far better off to either sign an NDA for each specific business, or, you can always have a running schedule to the NDA and add specific businesses as you progress.
It is important to gain an understanding of the usual language and conditions to these agreements because they are not all the same.
Furthermore, if you engage your attorney to review each one, not only will your search stagnate, you will spend an unnecessary amount on legal fees.
Visit my website to learn more helpful information about the various stages when buying a business . Have a great week!