Non disclosure agreement
M&A / Merger ModelThe agreement binding a prospective bidder to keep information confidential and use it only to evaluate the transaction.
Also written: NDA, confidentiality agreement
The NDA is the gate between the teaser and the information memorandum. Its core function is confidentiality and purpose limitation: the recipient may use what it learns only to assess this deal.
It almost always carries a non solicitation clause preventing the bidder from hiring the target's employees, which matters most when the bidder is a direct competitor who has just been given a map of the organisation.
For a listed target it frequently carries a standstill, restricting the bidder from buying shares or making an unsolicited approach for a set period. That is what stops diligence access becoming the springboard for an approach the board never invited.
Signing it is where a bidder goes from anonymous to named, so the terms get negotiated properly rather than treated as a formality, particularly by trade buyers who are also competitors.
Worked example
A trade buyer signs an NDA including a twelve month non solicit and, because the target is listed, a six month standstill.
The non solicit matters because the buyer is a direct competitor about to receive an organisation chart. The standstill stops it using diligence access to launch an unsolicited approach.
This is why NDAs with competitors are genuinely negotiated rather than signed as a formality.