When to Combine LOI with NDA

Overview: Separate vs. Combined Documents

In M&A transactions, confidentiality agreements and letters of intent serve distinct but related purposes. While traditionally executed as separate documents, there are situations where combining them into a single document can streamline the deal process.

The NDA governs information sharing, while the LOI outlines proposed deal terms and may include exclusivity, due diligence timelines, and other deal-process provisions. Understanding when to combine or separate these documents is a strategic decision that affects negotiation dynamics, timing, and legal exposure.

When to Use a Combined LOI + NDA

Ideal Situations for Combining

• Small to mid-market transactions: Deals under $50M where efficiency is prioritized and parties want to minimize legal costs
• Proprietary deals: One-on-one negotiations without competitive auction dynamics
• Speed-focused transactions: When time is critical and parties want to collapse the negotiation timeline
• Established relationships: When buyer and seller have prior dealings and trust exists
• Strategic partnerships: Transactions that may evolve between acquisition, investment, or partnership

Benefits of Combined Documents

• Reduced negotiation rounds: One document means one set of negotiations
• Lower legal costs: Less drafting, review, and back-and-forth
• Faster execution: Single signing ceremony accelerates deal timeline
• Consistency: Defined terms and provisions are internally consistent
• Signal of commitment: Executing a combined document demonstrates serious intent

When to Keep Documents Separate

Situations Favoring Separate Documents

• Competitive auctions: Sellers want NDA signed by all bidders before sharing any information, while LOI goes only to selected bidders
• Complex transactions: Large deals with multiple workstreams benefit from dedicated documents
• Regulatory considerations: Some industries require specific NDA provisions that complicate combination
• Public companies: SEC disclosure requirements may necessitate separate treatment
• Exploratory discussions: When parties are uncertain if deal will proceed, NDA-only allows information sharing without commitment

Factor	Combined Document	Separate Documents
Speed	Faster to execute	Two negotiation cycles
Flexibility	Less flexible timing	Independent execution
Auction Process	Not suitable	Standard approach
Legal Costs	Lower	Higher
Complexity Handling	Can become unwieldy	Each document focused
Exploratory Discussions	Too much commitment	NDA enables sharing

Structuring the Combined Document

When combining LOI and NDA, proper structure is essential to ensure clarity about which provisions are binding and which are merely indications of intent.

Recommended Structure

1. Preamble: Identify parties and purpose of the combined document
2. Proposed Transaction Terms (Non-Binding):
   • Purchase price and structure
   • Key assumptions and conditions
   • Proposed timeline
   • Due diligence scope
3. Binding Provisions:
   • Confidentiality obligations (full NDA terms)
   • Exclusivity/no-shop period (if applicable)
   • Expense allocation
   • Public announcements
   • Governing law and dispute resolution
4. General Provisions: Term, termination, miscellaneous

Key Provisions to Address

1. Confidentiality (Binding)

Include all standard NDA provisions: definition of confidential information, permitted uses, permitted disclosures, exclusions, term, return/destruction, remedies. These should be as comprehensive as a standalone NDA.

2. Exclusivity (Binding)

If the buyer is requesting exclusivity, this is typically a binding provision. Specify the exclusivity period, scope (what activities are restricted), and any conditions or carve-outs.

3. Transaction Terms (Non-Binding)

Purchase price, deal structure, key terms, and conditions are typically non-binding. Make this explicit to avoid claims that an LOI creates a binding obligation to complete the transaction.

4. Due Diligence Access (Mixed)

The commitment to provide access may be binding, while the scope and timeline may be non-binding guides. Be explicit about which aspects are obligatory.

5. Standstill (Binding)

If included, standstill provisions should be binding. Consider whether standstill belongs in the combined document or should be addressed separately.

Negotiation Considerations

For Buyers

• Combined documents can signal seriousness and accelerate the process
• Ensure exclusivity provisions are binding and clearly defined
• Negotiate residuals clause within the confidentiality section
• Keep transaction terms clearly non-binding to preserve flexibility
• Include clear termination rights if diligence reveals issues

For Sellers

• Ensure confidentiality provisions are robust despite the combined format
• Consider whether standstill should be included in the combined document
• Be cautious about exclusivity duration - combined documents may extend timelines
• Ensure break-fee or expense reimbursement provisions are binding if included
• Maintain ability to terminate if buyer fails to meet diligence milestones

Common Mistakes to Avoid

1. Ambiguous binding status: Failing to clearly identify which provisions are binding vs. non-binding
2. Incomplete NDA provisions: Treating the NDA portion as an afterthought rather than a comprehensive agreement
3. Over-complicating: Including too many provisions that make the document unwieldy
4. Ignoring auction dynamics: Using combined documents when a competitive process makes them inappropriate
5. Inconsistent definitions: Using terms inconsistently between the LOI and NDA sections
6. Missing termination provisions: Failing to address how the combined document terminates under various scenarios

Sample Binding Provisions Language