Common Ground

One of the first Buyer/Seller interactions in the acquisition process is addressing the target’s information disclosure and negotiating a confidentiality agreement. Soon after the buyer initiates contact, and the seller decides to proceed, the seller’s typical first step is a protective legal measure: Contact our attorney and sign our CA (Confidentiality Agreement).” 

The Buyer needs to be careful in these situations, since changes to the Seller’s CA are often needed.  If some bidders willingly sign the document quickly without comment - perhaps even without reading it -   it only fuels the Seller’s perception that the prospective acquirer who wants to negotiate is being unreasonable.

Almost immediately, the process of dealmaking becomes an awkwardly legal one, premised on a complicated agreement that few corporate executives want to review, let alone shape. The tone is set by a document that is seen as a boilerplate, necessary evil by management. The result?  All too often the whole thing is delegated to the lawyers.

It’s a temptation to delegate the confidentiality agreement completely to the attorneys.  It’s also a temptation for buy-side to want detailed confidential information before the business case for interest in the target, based on non-confidential information, has been established. These temptations all too often play out, with significant impact on a deal’s prospects for success.  It doesn’t have to play out this way.

When the CA is viewed as a business matter driven by management with support from legal counsel, it can become an early opportunity for the buyer to present its acquisition team as a competent and experienced, with a firm but rational business perspective on confidential information disclosure. It can set a tone for considering the business trade-offs in the CA - detailed information versus potential future constraints that accompany that information – and for the business negotiations that may follow. 

If the first interactions involve a CA, the scope of this agreement needs to be first understood and discussed from a business perspective, by business executives, before it is negotiated and refined from a legal perspective.