Confidential Conversations: Time to talk Business

Ready to start preparing for your eventual exit but don't want your employees to know, or worse your competition? Discover how NDAs safeguard sensitive information and build trust during the business transaction process.

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TRANSCRIPT:

Welcome to Integrated Insights with ICCG. For more than 30 years, our team has partnered with small business owners to prepare for and navigate the business transaction process.

Pull up a chair as we share stories and insights from our experience on all sides of the M &A table. Welcome back for another episode. My name is Michael Hefner.

I'll be your host today on this episode of Integrated Insights. I'm joined by a couple team members of mine, Andrew and Mason. Welcome guys. Thank you. Yeah, today we're going to talk about NDA's non -disclosure agreements.

So to get started, can you guys explain what an NDA is and its primary purpose in mergers and acquisitions? Yeah, I'd say that at the most basic level it's a legal document that keeps,

that makes sure that your information is confidential and it's important in our industry to sign NDAs because of the sensitive information that's being passed along.

One when we engage a client, we sign an NDA between us and them because they are going to be giving us financials, they're going to be giving us employee information,

whatever it may be, that we're going to see and we want them to feel comfortable giving us that information, knowing that it's going to be kept confidential. I would say also it's in our industry when you're selling a business and you go talk to a buyer or you are under LOI and they start due diligence,

they are going to be requesting a ton of information, a ton of employees, customers, all of that. And it's to protect the business while that's in there.

And so that's at its most basic level. - NDAs are key. I mean, they are essential for us, right? And almost everybody that we talk to,

we push for an NDA. And I will say for our sell side conversations,

a business owner, we try to, we just go ahead and say, "Hey, let me sign an NDA to make you feel more comfortable." And I've actually gotten quite a few people that say,

"Oh, no, you, or, you know, just give me your word. Look, I, I get that. And there are people that want to trust like that.

But the purpose, I heard somebody say this, the purpose of an NDA is to foster secure business relationships. And that is something that is,

it's, it is, when you can put something in place that will do that, it is, it is so, it's an automatic,

hey, I trust this guy because he's going to do whatever to make sure there's confidentiality, right? And so, I think that it is,

it's a sign of respect to just go ahead and put it in DA in place. Whether you trust the person or not, I mean, even a personal relationship, we asked, we were helping out a family that is,

it was a personal relationship that I had and his parents had a business, his dad had died and we kind of were walking through what a succession would look like very small company but we just look we asked for a tax return and I said I want an NDA in place and and they they kind of responded in that way and I just know I I want to send you an NDA so that you guys feel comfortable and and all that but I'm

trying to be above approach and so and and foster that secure business relationship. And the personal and business side,

it's difficult to balance, but you put that in place so that it's secure. That's really good. Mason, I know you kind of mentioned,

hey, before we're engaged with a client, we want to make sure that we have that NDA in place, but we also have a lot of meetings with people that don't engage very quickly.

So where in that kind of continuum, what kind of information do we request or what kind of information does someone volunteer that we start to bring up like, "Hey,

I'm gonna go ahead and send you this over." Because either one, we're requesting XYZ information or two, you just said this and I just want you to know that that's not leaving this conversation. - Yeah, I think it's mostly When somebody comes to us or we have conversations with people and they're interested in a discussion about selling their company We're we're gonna ask for tax returns financials of organization chart

all that kind of stuff and That's when we will send them an NDA and we'll sign it and just for them to know that their information is secure Well, yeah, and they're not engaged yet,

right? Yeah, not engaged not engaged. No, I No. I would also, you mentioned something that was key, right? Somebody that's interested in selling their business.

It's not just about the information that is being disclosed. It is about the fact as well that they are open for sale, right? And so, and we make that abundantly clear for every buyer that we talk to you is that,

hey, that is part of it. You may there's there's a disclosure of the fact that they're open to sell is That is off to or that that is that is part of it.

You cannot disclose that Yeah, it's a great point. It's great So we talked a lot so far about just the protection that an NDA brings but how does it also also help with communication?

How does it impact transparency and communication? - Yeah, I mean, I think that there's just the trust level and you feel a lot more open to share with us things about the business,

about, whether it be lawsuits or whatever it is, I think you're just open at sharing anything and everything 'cause it helps us prepare as we take the company to market and we talk with buyers as well.

Yeah, I think I think that just to add the there are some things that we'll probably withhold a little bit for a while.

I mean look we're still not going to disclose customer names to a buyer. We're still not going to disclose employee pay. There are you know there we just we just aren't going to do that.

Yeah. Pricing all that, yeah. Yeah. And that's something that we tell our clients that, hey, that's not going anywhere. There's a time and a place to disclose that,

but we're not going to do that right off the bat. Yeah. And a lot of times, we intentionally don't even ask for So,

you know, it's in cases that's volunteered, and then we make sure knowing that that is sensitive info, we go ahead and sanitize, right, we call sanitizing the information to make sure that whatever is passed along is only what's needed and necessary at that step.

So, that's great. So, NDAs put in place for protection and to have a positive impact on communication.

What happens if an NDA is breached? What steps should be taken then? I'll quickly answer that. In my words, Mason,

you can add. But I think the great thing about an NDA is that it provides the framework for action. And so it gives the expectation of what is going to happen.

The one that has been violated, I guess you could say, is the one that they will do X,

Y, and Z, or they have the right to X, Y, and Z. And so That's another purpose of this NDA is to make very clear of what is going to happen and what they have a right to.

I think it's important at the very beginning when you're sent an NDA to sign, I think it's important to read it and know what it says and understand it. I think it's easy just to sign it and be done with it,

but it's important to read it beforehand. But if you think here in breach, or if somebody has breached your NDA, I think that revisiting it and then seeking legal counsel and advice on what to do next.

Yeah. Yeah. The fact of the matter is, in and of itself, the NDA does nothing, right? If there's no enforcement behind it, if you're not going to stick to what it says and make sure to call out when things appear to be in breach.

An NDA is just a piece of paper with a signature on it. So really important to know what you're signing, know what was sent to you. So that's great. So what advice would you all give to business owners about using NDAs?

Mason, I know you just mentioned like making sure you read it, but anything that you would add to that? Yeah, I think reading it and I don't know if there's anything else I would add to it.

I think that if you have questions about it, ask Legal Counsel or have somebody look over it because you want to make sure you understand it.

And so that's the only advice, other advice I would give. There are unreasonable asks that people make when they send you an NDA.

I've gotten NDAs that I'd say, hey, no, that's is, that's, we can't have that in there. And, and so I think that it is,

it is important for, for, for us to read it, for your advisor to read it, your, your counsel,

legal counsel to, to read it just because I think that it's important. People put unreasonable asks and you won't always know the language like an attorney does,

right? - Yeah. What do you think is like the most unreasonable ask? Is it, does it have to do with the timeframe? Because I feel like that's the one I've gotten the most back on is the length of time.

Yeah, that's that's one that I mean look there's there's so many things that are that are pushed back on. I think that the most unreasonable it probably surrounds employees or for for us,

or even competitors, just because, hey, we retain the right to use this as,

you know, for the benefit of, which is like, I mean, that's part of an NDA why you don't, why what you have an NDA to make sure that they don't misuse it,

right? And so, or misappropriate it, right? And so I think that that is something that we, it's probably the most unreasonable ask.

I mean, we told them no and they took it out right away. So it wasn't fought. And there are several things that we have in our NDA that people add or they want to change,

right? The most common one that I've seen change is, is, you know, all things are going to change from, it changes from the legislation or the enforcement or whatever it is,

changes from Texas to Delaware. And that's essentially what a lot of private equity, what a lot of PE groups want. And hey, that it's it's okay. Yeah,

I think the last thing that I would add is just that like business owners use your discretion, right? Like you know your business, you know the information that if it got out,

it could be harmful. Like is the information that you're talking about something that if it was put in the newspaper, your business would suffer. If the answer is yes, then you know,

ask for the NDA before you disclose that information. To us, another advisor, we're talking a lot from our perspective, but there's a lot of advisors out there that may not have the same discretion that we have and may not have the same priority for protecting clients.

So making sure that you know that, as well as like, hey, know your intentions. And because I would say, in our case, if we have a client that's ready to move forward,

go ahead and say, hey, I'd love to give you financials. Like I'm ready to give you whatever you need. I know you haven't asked for anything yet, but I know I want to move forward and know I'm going to move forward with you.

Would you send me an NDA just so that when that time comes, I can just get it back to you and we already got that in place? Because if that is your intention, there's no point waiting really.

So it's great. - Yeah, that's good. - Awesome, guys. Well, that is all the time that we have for this episode. Andrew Mason, thanks for joining me, guys. - Thank you.

- Thank you. - And that wraps up another episode of Integrated Insights with ICCG. Be sure to subscribe and stay tuned for more stories from our team. We love hearing from our listeners.

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