Understanding the Seller's Position
When your company is the target of a potential acquisition, you face a fundamental tension: you must disclose sensitive information to attract serious buyers, but that very disclosure creates risk if the deal falls through. The buyer learns your trade secrets, customer relationships, financial weaknesses, and strategic plans - then walks away, potentially armed with information to compete against you.
A well-drafted seller-side NDA is your primary protection against this risk. Unlike a standard business NDA, an M&A confidentiality agreement for sellers must address unique concerns: preventing hostile takeover attempts, protecting against employee poaching, controlling information flow to competitors, and establishing remedies that actually provide leverage.
As the party disclosing the most sensitive information, sellers typically have the right to propose the first draft of the NDA. Use this advantage to establish protective terms from the start - it's always harder to add protections during negotiation than to defend them.
Key Provisions for Seller Protection
Broad Definition of Confidential Information
Sellers should draft the definition of "Confidential Information" as broadly as possible to capture all potentially sensitive disclosures. This includes not just written documents, but also oral communications, observations during site visits, and information derived or inferred from disclosed materials.
Consider including categories such as:
- Historical, current, and projected financial information
- Customer and supplier identities, contracts, and relationships
- Employee compensation, benefits, and personnel files
- Proprietary technology, trade secrets, and intellectual property
- Business strategies, expansion plans, and competitive positioning
- The existence and terms of the transaction discussions themselves
Standstill Clause
Prevents the buyer from acquiring shares, making public offers, or attempting hostile takeover for 12-24 months.
Non-Solicitation
Prohibits buyer from recruiting your employees for 18-24 months, protecting key talent from being poached.
No-Contact Clause
Requires buyer to route all communications through designated contacts, preventing disruption to operations.
Extended Term
3-5 year confidentiality period for general information; indefinite protection for trade secrets.
The Standstill Provision
Perhaps the most critical seller protection is the standstill clause. This provision prevents the potential buyer from taking actions that could harm the seller's interests during and after due diligence, including:
- Acquiring the seller's securities in the open market
- Making or announcing unsolicited acquisition proposals
- Soliciting proxies or seeking board representation
- Joining with others to take any of the above actions
- Requesting the seller to waive or amend the standstill provisions
Buyers will push for "fall-away" provisions that terminate the standstill if you negotiate with other parties. Consider carefully whether to include such carve-outs, as they can undermine your protection. If you do include them, ensure they require public announcement of a competing deal, not mere discussions.
Seller vs. Buyer NDA Positions
| Provision | Seller-Favorable Position | Buyer-Favorable Position |
|---|---|---|
| Definition of Confidential Info | Broad, catch-all language Seller | Narrow, specific categories Buyer |
| Standstill Period | 18-24 months, no fall-away Seller | 12 months with fall-away triggers Buyer |
| Employee Non-Solicit | All employees, 24 months Seller | Named key employees only, 12 months Buyer |
| Residuals Clause | No residuals rights Seller | Broad unaided memory exception Buyer |
| Confidentiality Term | 5 years, trade secrets indefinite Seller | 2 years for all information Buyer |
| Representatives | Buyer liable for all breaches by reps Seller | Only "need to know" disclosure Buyer |
Controlling Information Dissemination
Beyond the core confidentiality obligations, sellers should implement procedural protections to control how information flows during due diligence:
Data Room Controls
The NDA should establish that all due diligence materials will be provided through a controlled virtual data room with logging and access controls. This creates an audit trail and allows staged disclosure of increasingly sensitive materials. Consider requiring that:
- All access be logged with user identification and timestamps
- Downloads be prohibited or limited to authorized users
- Printing and screen capture be technically restricted where possible
- Access can be terminated immediately upon notice
For detailed guidance on virtual data room provisions, see our Data Room Access NDA guide, which covers technical controls, user authorization, and audit requirements.
Clean Team Provisions
When the potential buyer is a competitor, sellers should insist on clean team provisions that restrict access to the most competitively sensitive information. A "clean team" typically consists of the buyer's outside advisors and specifically approved internal personnel who are walled off from competitive decision-making. See our detailed guide on clean team provisions for implementation strategies.
Remedies and Enforcement
Standard contract damages are often inadequate for confidentiality breaches because the harm is difficult to quantify but potentially catastrophic. Seller-side NDAs should include:
- Acknowledgment of irreparable harm: The buyer agrees that monetary damages would be inadequate and that the seller is entitled to seek injunctive relief without proving actual damages or posting a bond.
- Specific performance: The buyer agrees that the seller may obtain court orders requiring specific performance of the NDA obligations.
- Fee shifting: The prevailing party in any dispute is entitled to recover reasonable attorneys' fees, creating deterrence against breach.
- Audit rights: In some cases, sellers may negotiate the right to audit the buyer's compliance with destruction obligations.
Post-Termination Obligations
If the transaction does not proceed, the NDA should require the buyer to:
- Promptly return or destroy all confidential materials at the seller's election
- Provide written certification of destruction signed by an authorized officer
- Maintain confidentiality of retained information in legal archives
- Continue observing non-solicitation and standstill obligations for the full term
The carve-out for legal archives should be narrow - permitting retention only where legally required and only with continued confidentiality obligations. Some buyers request retention for compliance purposes; sellers should limit this to specifically identified regulatory requirements.
Common Seller Mistakes
Weak permitted disclosure carve-outs: Don't allow the buyer to share information with an unlimited number of "representatives." Require prior identification of personnel with access, or at minimum, require that the buyer maintain a log of all persons who received confidential information.
Other common mistakes include:
- Failing to include the existence of deal discussions as confidential information
- Allowing residuals clauses that effectively permit competitive use of insights gained
- Not addressing customer/supplier contact restrictions
- Accepting short confidentiality periods that expire before competitive harm materializes
- Omitting provisions for affiliated bidders or consortium members