8 NDA Red Flags in M&A Deals

Overlooking key issues in a Non-Disclosure Agreement can lead to serious risks — data breaches, legal disputes, and deal disruptions. Here are eight common red flags to watch for before you sign.

• Overly broad exclusions for “Confidential Information,” like residuals clauses or exclusions without proof requirements
• Attorney fee provisions that favor the prevailing party and discourage valid claims
• Excessive restrictions on sharing information with advisors, lenders, or financiers
• Overreaching non-solicitation clauses that restrict hiring or poaching too broadly
• Refusal to amend one-sided terms, which often signals future negotiating rigidity
• Non-mutual or buyer-only NDA templates that protect only one party
• Unreasonable termination periods — either too short or indefinite
• Missing protections for oral disclosures made during interviews and negotiations

Broad Exclusions and Fee Provisions

Standard NDA exclusions cover information that’s already public or independently developed, but when they’re too broad they create loopholes. A “residuals clause,” for example, lets the recipient use anything retained in an employee’s memory after reviewing confidential materials — effectively giving them free rein to exploit trade secrets. Attorney fee provisions that make one party bear all legal costs if a deal falls through, regardless of fault, can create a similar imbalance; in the 2012 case Goodrich Capital, LLC v. Vector Capital Corporation, the threat of hundreds of thousands of dollars in exposure led to a quick settlement rather than a fair hearing.

Restrictions on Advisors and Non-Solicitation

Requiring written consent before sharing information with attorneys, accountants, or lenders can create delays that derail time-sensitive deals, especially for acquirers who need financing. NDAs should define “Representatives” broadly and adopt a need-to-know standard instead. Non-solicitation clauses, meanwhile, are meant to stop buyers from poaching employees or customers if a deal falls through, but they become problematic when they restrict hiring all employees rather than just those involved in due diligence. Typical terms run 6 to 24 months, with 12 months as the norm; anything beyond two years should raise concerns.

One-Sided Terms and Termination Periods

A refusal to negotiate one-sided terms often previews how a counterparty will behave later in the deal. Buyer-only NDA templates, which bind only the buyer to confidentiality, create a clear imbalance when both sides are exchanging sensitive information, and they tend to slow negotiations because their aggressive terms require more legal review. Termination periods generally fall between one and five years — indefinite terms can be viewed as unreasonable by courts and saddle buyers with ongoing administrative burden, while terms that are too short can leave trade secrets exposed once the NDA expires.

Protecting Oral Disclosures

Management interviews and stakeholder negotiations generate a lot of verbal information, yet many NDAs fail to protect it. Some agreements require any oral disclosure to be summarized in writing and labeled confidential within 15 to 30 days — a requirement Jacob Orosz of Morgan & Westfield calls impractical in the IT age. NDAs should explicitly cover oral, visual, and electronic disclosures without requiring follow-up written confirmation, and highly sensitive details are often best held back until trust is established later in the process.

Getting It Right

A poorly constructed NDA can expose you to data breaches, employee poaching, and operational disruption from legal disputes. Work with experienced M&A counsel to customize key terms, including injunctive relief and trade secret protections, and pair the agreement with a secure virtual data room featuring role-based access and dynamic watermarking. For sellers preparing to go to market, Deal Memo offers tailored CIMs and OMs for business brokers, M&A firms, and investment banks, with drafts delivered in just 72 hours — so you can negotiate from a position of strength.