Never Let the Buyer Write the NDA

Whoever drafts the agreement drafts it in their own interest. Every time, without anyone behaving badly.

This is not cynicism, it is job description. The buyer’s counsel is paid to protect the buyer. Handed a blank page, she will write a document that gives her client maximum room and you minimum recourse, and she will be doing her job correctly.

So when a buyer says he has a standard form and offers to send it over, understand what has just happened. He has offered to set the terms on which you expose your company, and he has made it sound like a courtesy.

The two clauses that get owners

Scope language that someone else defines. “All information which can have commercial value” sounds broad and protective. Read it again and ask who decides what has commercial value. Not you. A term whose meaning is determined by the party you are protecting yourself against is not protection.

The public-information release. This one reads as boilerplate and it is the sharpest thing in the document. It provides that if confidential information becomes public, the receiving party is released from any obligation as to that information — free to repeat it anywhere, to anyone.

Now think about how your sale becomes public. Usually through a leak. The clause says that once information has escaped, the buyer may amplify it without breaching anything. You have signed away your remedy at the exact moment you need it.

And the clauses that are not there at all

The defects above are things you can read. The expensive problems are things nobody put in, because nothing required the buyer to.

Nothing stops him hiring your people. This is the most common real harm from a sale that leaks, and most buyer-supplied forms say nothing about it. A non-solicitation clause covering your employees for a defined period is standard, and you have to ask for it.

Nothing covers everyone who will see your information. The buyer signs. Then the file goes to his lawyers, his accountants, his lender, his consultants, sometimes a co-investor — none of whom signed anything. The agreement needs to bind his affiliates and representatives and make him responsible for them.

The residuals clause. It reads pleasantly: the receiving party may use general knowledge, skills, and experience retained by its personnel. Read it twice. It can mean that whatever your information becomes once it is inside somebody’s head is theirs to use. Sophisticated buyers ask for this on purpose. Know what you are agreeing to before you agree to it.

The data room. Almost everything a buyer sees now arrives through a hosted data room rather than across a table, so the agreement has to reach it: who may be granted access, whether documents can be downloaded or only viewed, whether anything may be forwarded, and what happens at the end. Not “return all materials.” Written confirmation that every copy has been deleted.

An agreement written for a world of paper leaves the actual exposure uncovered.

Strict is not the same as workable

The opposite failure is just as costly. You cannot tell a corporate buyer he may not discuss your business with anyone, because he cannot comply. He has to talk to his board, his lenders, and his deal team. An agreement that forbids the thing he must do is an agreement he quietly ignores, and once he is ignoring one clause he is reading the rest as suggestions.

What works is scoped permission rather than blanket prohibition: a clause that defines what may be discussed, with whom, and under what conditions. It is a tighter document than the absolute version, and it is the one that actually governs behavior.

Why the obvious fix does not work either

Most owners, having read the above, decide to write it themselves.

Two things usually happen. The first is that it takes weeks they do not have, in half-hour pieces between customers. The second is worse: at some point they pull in their most trusted employee to help finish it. Which means the document whose entire purpose is keeping the sale confidential has been drafted with the help of someone who now knows about the sale.

The other common route — handing it to the attorney who has handled your business for twenty years — runs into a narrower problem. A good general attorney is not necessarily an attorney who reads M&A confidentiality agreements. The clauses above are not obscure to someone who sees them weekly and are easy to miss for someone who does not.

The short version

You supply the agreement. It binds his advisors as well as him. It covers your employees. It says what happens to the data room at the end. And it permits the conversations he genuinely has to have, so that the rest of it holds.

If the buyer objects to supplying terms rather than setting them, that is information about the buyer.

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This is what we do. Prism Edge supplies the confidentiality agreement and controls what a buyer sees and when, scoped so he can run his process, and tight enough that your people, your customers, and your data stay yours.

And the full chapter on this is in Selling Your Business The Easy Way, free to download here.