A well drafted non-disclosure agreement is crucial during a competitive bid process, during which the selling entity may share proprietary information with prospective purchasers, including information regarding seller’s employees, technology, financial records, operations, trade secrets and more.
While the crux of NDA negotiations often focuses largely on the definition of confidential information, the duty to maintain confidentiality, or the NDA’s survival period, there is one often overlooked subtlety that deserves critical seller attention. Specifically, the seller must pay close attention to the individuals and entities included in the definition of “representatives” who will have access to seller’s confidential information.
The definition of representatives will most often include the recipient party’s shareholders, directors, officers, members, managers, employees, agents, and advisors. However, when the recipient party is a private equity firm, recipient will often seek inclusion of its portfolio companies and co-investors in the definition of representatives. When portfolio companies are included in the definition of representatives, the seller should determine whether the recipient party’s portfolio companies are strategic competitors of the seller. If so, the seller should (1) consider requiring the recipient party to obtain the seller’s prior written consent before providing the confidential information to its portfolio companies; and (2) ask buyer to clarify the identities of portfolio companies and their representatives who will have access to the information.
Similarly, if the recipient party is insistent on including potential co-investors in the definition of representatives, then the seller must protect itself by requiring the recipient party to obtain seller’s prior written consent before delivering confidential information to a potential co-investor. For added protection, seller can require the buyer to provide the co-investor’s written acknowledgement to be bound by the terms of the confidentiality agreement.
This post was written by Allyson Matvey.
