NDAs and confidentiality in M&A: what really protects your information
Why non-disclosure agreements (NDAs) are not enough in M&A — and how to genuinely protect your information
Whether you are raising finance, raising equity, working on a merger or acquisition (M&A) or selling a business, signing a non-disclosure agreement (NDA) is almost automatic. Yet in practice, an NDA in M&A does not really protect strategic information.
Whether you are raising finance, running an equity fundraising, working on a merger or acquisition (M&A) or going through a business sale process, signing a non-disclosure agreement (NDA), also called a confidentiality agreement, is almost automatic. This legal document is usually the first formal exchange between the parties before any sensitive information is shared.
Yet in practice, NDAs do not really protect strategic information. Why are these agreements so often insufficient? And above all, what measures should you put in place to protect your confidential data effectively during an M&A or financing process? That is what we look at here.
What is a non-disclosure agreement (NDA)?
An NDA (non-disclosure agreement) is a legal contract designed to protect confidential information exchanged between two parties.
In an M&A or financing context, it is usually signed between:
- a disclosing party (the company sharing the information)
- a receiving party (investor, potential buyer, adviser, etc.)
A confidentiality agreement is typically a document of 1 to 20 pages that sets out several key elements:
The parties involved
The contract identifies the parties and their role in the exchange of information. In some cases both parties exchange information; in others, only one party shares confidential data.
The definition of confidential information
The NDA specifies which information is protected. As a rule, publicly available information is expressly excluded from its scope. Protected information may include:
- financial data
- strategy
- commercial data
- customer information
- intellectual property
- data relating to a financing or a sale
The term of the agreement
An NDA does not last forever. In practice, its term is usually limited and rarely exceeds 5 years.
No obligation to share
An important point: an NDA does not oblige anyone to share information. It simply creates the possibility of doing so within a secure framework.
Remedies for breach
The contract usually provides for financial penalties and legal liability if a party fails to meet its confidentiality obligations.
Why NDAs do not really protect you in M&A
Despite their legal importance, confidentiality agreements are often of limited effect in practice.
Because people do not always comply with them
In reality, information can circulate despite the NDA. For example:
- an investor may share a document with a colleague
- a lawyer, M&A adviser or accountant may forward a file
And the information can travel beyond the authorised recipients. With more than 10 years' experience in financial transactions, we regularly see that some NDAs are not strictly observed. Of course, most professionals are serious — but it only takes one careless intermediary to cause a leak.
Because a breach is very hard to prove
How do you know there has been a leak?
In many cases, the company will never know that the information has circulated.
How do you trace the source of the leak?
Even if the leak is identified, you still have to prove who shared the information and when. That is often very complex.
How do you measure the loss?
To obtain damages in court, you have to quantify the loss. But how do you prove that a piece of confidential information caused a financial loss or a loss of profit? It is often very hard to establish legally.
Because legal proceedings are expensive
Bringing a claim for breach of confidence can be a heavy undertaking:
- more than a year of proceedings
- lawyers' fees
- legal costs
Simply issuing proceedings can easily cost EUR 5,000 or more. For information that is not strategic, the game is often not worth the candle.
Because there is also a reputational risk
Taking legal action against:
- a private equity fund
- a large corporate
- a well-known player
can have reputational consequences. In some cases, companies prefer not to take legal action at all.
Should you still use NDAs in M&A?
Yes — but as a first line of defence
Despite their limits, confidentiality agreements remain essential. They allow you to:
- establish a clear legal framework
- set out expectations formally
- create a written record
They are a first line of defence, but they must be backed up by other measures.
How to genuinely protect confidential information in M&A
Several strategies can be used to secure an M&A process or an equity fundraising.
Compartmentalising information
This is the single most important measure. It means sharing only the information that is strictly necessary, according to the profile of the counterparty and how far the project has progressed.
Example: several data rooms
You can set up a full data room and a partial data room. Each type of counterparty receives a different level of information.
Phasing information over time
The further the project progresses, the more information can be shared. For example:
- first phase: general information
- second phase: detailed financial information
- final phase: sensitive strategic information
Anonymising certain information
You can conceal the company's location, simplify the description of its business and remove certain identifying details. In some cases, anonymous teasers are used to present a project without revealing the company's identity.
A relationship of trust with the counterparty
The human relationship remains a key factor. The more serious the discussions, the more credible the counterparty and the further the project has progressed, the more appropriate it becomes to share sensitive information.
Using watermarks (watermarking)
Another technique is to use invisible watermarks in documents. These markings make it possible to:
- identify the original recipient
- trace the source of a leak
Even if the document circulates, the source of the disclosure can be identified.
Providing for contractual penalties
Some companies include substantial financial penalties in their NDAs. However, caution is needed:
- penalties that are too high may be struck down by a court as excessive
- they can also slow down negotiations
The aim is to deter without blocking the process.
Some investors even refuse NDAs at the outset
In some cases, certain private equity funds refuse to sign an NDA at the initial screening stage. Their reasoning: NDAs can slow the process down, and they prefer to review a preliminary file first. Then, if the project interests them, they sign an NDA before accessing sensitive information.
NDAs and M&A: one tool among many
In a financial transaction, the NDA is only one part of a wider set-up. Even if the agreement is perfectly drafted and signed, without compartmentalised information, a structured data room, watermarking and a disclosure strategy, protection will remain inadequate.
Conclusion: how to protect your information effectively in M&A
first share as much non-confidential information as possible
check that the counterparty is genuinely interested
then sign a non-disclosure agreement (NDA)
put additional protection measures in place
NDAs therefore remain a useful but imperfect tool, which must always fit into an overall strategy for managing confidential information.
If you are working on a business sale, an equity fundraising or an acquisition, it is essential to structure how your information is disclosed. A sound confidentiality strategy can help you avoid significant legal, financial and reputational risks.
Frequently asked questions about confidentiality and NDAs in M&A
What is an NDA (non-disclosure agreement)?
It is a legal contract designed to protect confidential information exchanged between a disclosing party and a receiving party. It defines the parties, the protected information, the term and the remedies for breach.
Does an NDA really protect my information?
Not on its own. In practice, information can circulate, a breach is hard to prove, proceedings are expensive and there is a reputational risk. An NDA is a first line of defence that needs to be backed up by other measures.
How can you genuinely protect your data in M&A?
By compartmentalising information (full and partial data rooms, phasing over time, anonymisation), building a relationship of trust, using watermarking and including proportionate contractual penalties.
Should you sign an NDA before any discussion?
The best approach is to share as much non-confidential information as possible first, check that the counterparty is genuinely interested, then sign an NDA before opening access to sensitive information.
Protect your information at every stage
Structured data rooms, compartmentalised disclosure and hands-on support: Collaboration Capital secures the way information is shared throughout your business sale, acquisition or equity fundraising.
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