Getting the Most Out of Confidentiality Agreements
When it comes to buying or selling a business, a solid confidentiality agreement is a must. A key way that business brokers and M&A advisors help buyers and sellers is through their extensive knowledge of confidentiality agreements and how best to implement them. In this article, we will give you an overview of what to expect out of your confidentiality agreements.
A confidentiality agreement is a legal agreement that essentially forbids both buyers and sellers, as well as related parties such as agents, from disclosing information regarding the transition. You should have a confidentiality agreement in place before discussing the business in any way and especially before divulging key information on the operation of the business or trade secrets.
While a confidentiality agreement can be used to keep the fact that a business is for sale private, that is only a small aspect of what modern confidentiality agreements generally seek to accomplish. Confidentiality agreements are used to ensure that a prospective buyer doesn’t use any proprietary data, knowledge, or trade secrets to benefit themselves or other parties.
When creating a confidentiality agreement, keep several variables in mind:
- What information will be excluded
- What information will be disclosed
- The term of the confidentiality agreement
- The remedy for breach, and
- The manner in which confidential information will be used and handled.
Any effective confidentiality agreement will contain a variety of key points. Sellers will want their confidentiality agreement to cover a fairly wide array of territory. or example, the confidentiality agreement will state that the potential buyer will not attempt to hire away employees. In general, this and many other details, will have a termination date.
The specifics of how confidentiality is to be maintained should also be included in the confidentiality agreement. Parties should agree to hold conversations in private; this point has become increasingly important due to the use of mobile phones and in particular the use of mobile phones in out-of-office locations. Additionally, it is prudent to specify that principal names should not be used in outside discussions and that a code name should be developed for the name of the proposed merger or acquisition.
Safeguarding documents is another area that should receive considerable attention. Digital files should be password protected. All paperwork should be kept in a safe location and locked away for maximum privacy when not in use.
In their enthusiasm to find a buyer for their business, many sellers have overlooked the confidentiality agreement stage of the process. Most have regretted doing so. A confidentiality agreement can help protect your business’s key information from being exploited during the sales process. Any experienced and capable business broker or M&A advisor will strongly recommend that buyers and sellers always depend on confidentiality agreements to establish information disclosure perimeters.
Copyright: Business Brokerage Press, Inc.
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Effectively Using Confidentiality Agreements
Every year many great deals, deals that would have otherwise gone through, are undone due to a failure to properly use and follow confidentiality agreements. Not adhering to this essential contract can lead to a myriad of problems. Employees discover a business is going to be sold and quit, competitors learn the business is for sale, or key customers learn of the potential sale and take their business elsewhere. Such issues can block a sale from successfully going through. Maintaining confidentiality throughout the sales process is of paramount importance.
Business buyers and sellers should fully embrace confidentiality agreements, often referred to as a non-disclosure agreements. Among the many and diverse benefits of working with a business broker is that business brokers know how to properly use confidentiality agreements and what they should contain.
Sellers who use a confidentiality agreement are protected from a prospective buyer disclosing confidential information during the sales process. Originally, such agreements were used to prevent prospective buyers from letting the world know that this business was for sale. Today, these contracts have evolved and now cover an array of potential seller concern such as ensuring that a prospective buyer doesn’t disclose proprietary information, trade secrets or key information they learned during the sales process.
Every business and every situation is different. As a result, confidentiality agreements must be tailored to each business and each situation. A solid confidentiality agreement should include, first and foremost, what areas are to be covered by the agreement, i.e., specifying what is and is not confidential. Other areas to be addressed include how confidential information will be shared and marked, the remedy for breaches of confidentiality, the terms of the agreement such as how long the agreement is to remain in force.
One key area in a confidentiality agreement is that the prospective buyer agree not to hire any key people away from the selling company.
When it comes to selling a business, few factors are as critical as establishing and maintaining confidentiality. The last thing any business wants is for its confidential information to land in the hands of a key competitor. Business brokers understand the value of maintaining confidentiality and know what steps to take to ensure that it is maintained throughout the sales process.