Non Disclosure Agreement (NDA) / Confidentiality Agreement

English-speaking German Attorneys and Lawyers in Berlin, Hamburg, Munich and Frankfurt

While confidentiality undertakings are common clauses typically included in various commercial and transactional agreements (e.g. share purchase agreements, general terms and conditions, terms of use for virtual services, employee agreements, etc.), actual non-disclosure agreements (NDAs) are most commonly found in a transactional context, in particular in the context of an M&A process where strategic or financial investors seek to acquire or sell companies.

Resolving the confidentiality dilemma in the Due Diligence Process

Any such process where a shareholder would like to sell his company is poised to lead to a certain kind of dilemma: considering the sheer complexity of the intended object of purchase, i.e. the target company, the potential purchaser or party interested in the transaction will of course want to thoroughly analyse the target company in order to be able to evaluate potential risks within the target company’s business and ultimately determine what they would be prepared to pay in order to acquire such company.

Such investigative process is commonly referred to as “Due Diligence Process” and is one of the major aspects of any corporate transaction. At the same time, the target company and its shareholders have a legitimate interest in keeping certain aspects of the inner workings of the target company non-public – e.g. business secrets, information potentially relevant in terms of competition law, other sensitive information relating to the business of the target company, its key-employees, assets, financial situation, etc.

Resolving the Confidentiality Dilemma via NDAs

In order to resolve this dilemma and in order to give comfort to all sides, i.e. the potential buyer and the shareholders of the company as well as the management of the target company itself, the first document to be signed usually is a non-disclosure agreement (NDA).

Such NDA is meant to provide the legal framework for the sharing of confidential information between the parties interested in the potential transaction, while at the same time providing security for the company’s management and the seller regarding information that they might be ready to share with the potential purchaser but only for the purpose of the evaluation of the transaction and only so long as the potential purchaser is considering the transaction.

Teaser documents starting the process

Usually, right at the beginning of any M&A transaction the parties (i.e. the “bidder” or “potential purchaser” or simply the “interested party” as well as the “seller”) will first exchange so called “teaser” documents, roughly outlining the specifics of the target company in an anonymized form without providing any sensitive information.

In M&A auction processes, such teaser documents are usually provided by the sellers M&A advisor or investment bank. In smaller, mostly strategic transactions, the potential sellers will want any interested party to sign an NDA prior to being provided any information, potentially even before being informed of the intention of the shareholders to sell their company.

Legal advice necessary to avoid liability risks

The current market knows one-sided NDAs, usually burdening just the interested party with confidentiality obligations, as well as mutual NDAs for situations where both seller and buyer might want to reveal confidential information about their respective businesses, e.g. in traditional business-combination situations or with regard to joint-venture constellations.

Generally, due to the immense liability risks involved when dealing with sensitive business information, anyone potentially involved in a corporate transaction – whether as buyer or seller – should obtain expert legal advice of a lawyer before signing any transactional non-disclosure agreement. We generally suggest that specialised attorneys are involved in the drafting and, especially so, the negotiation of any transactional NDA.

Knowing the Current Market-Standards is Key

Over the past two decades, certain market-standard clauses and provisions to be contained in an NDA have emerged. Such market-standard clauses differ largely, depending on the jurisdiction applicable and the location of the parties of the envisioned transaction. While the current market-standard in any jurisdiction is constantly shifting depending on factors such as whether the general economic situation warrants for a more buyer-friendly or seller-friendly market, certain clauses should always be included – or avoided, depending on the perspective - in any transactional NDA.

In our experience, the exact language and wording of the individual clauses contained therein can have a huge impact on risks and potential liabilities under the NDA and might even render a diligent investigation of the target company impossible if mistakes are made in the wording of certain NDA provisions. Especially the negotiation of NDAs can pose problems for non-specialised attorneys as well as their clients. Considering that many larger companies and, even more so, private equity funds and M&A advisors have standard form NDAs they wish to use for all transactions, it is essential for any legal advisor of their counterparty to know the respective market standard in their jurisdiction in order to even be able to explain to the advisors of the respective other party, why certain wording should either be included or omitted in German-law NDAs.

Problematic Clauses in Non-Disclosure Agreements

Most commonly misunderstood clauses in an NDA include provisions regarding:

  1. the return or destruction of any confidential information provided after expiry of the NDA,
  2.  the question when such an NDA should expire,
  3. exceptions regarding the obligation to keep confidential information confidential and not to share such information with any third party or anyone not involved in the transaction (i.e. other employees of the potential buyer) as far as they refer to legal obligations to disclose information or internal rules and regulations of certain industries,
  4. questions regarding the appropriate term and how to deal with automated backup and archival routines which may be hardcoded into the interested party’s IT systems,
  5. the question of who exactly should be allowed to see the confidential information – e.g. an investment committee, corporate bodies, employees, advisors –  and thus be included in the definition of “representatives” for the interested party,
  6. and generally the question of what the consequences should be in case of a breach of the NDA by either party.

Our Services in Connection with Non-Disclosure Agreements

The attorneys and certified specialist attorneys for corporate law of our law firm with offices in Hamburg, Berlin, Frankfurt and Munich

  • hold extensive knowledge and broad experience with transactional non-disclosure agreements both in the context of private equity as well as strategic transactions and
  • routinely draft, review, revise and negotiate NDAs for our clients in German and, even more commonly so, in English.

Do not hesitate to contact us for a fee quote, in most cases we can offer fixed fees per NDA, including anything from the first draft to negotiating the final execution version.

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