NDA in an acquisition: when more is regulated than confidentiality alone. Think carefully before you commit.

In practice, an NDA at the start of an acquisition process is still too often treated as a mere formality. In the enthusiasm to get the process moving, parties sometimes lose sight of the fact that an NDA may regulate more than confidentiality alone. Under Belgian law, this is an important point of attention: it is not the title of the document that is decisive, but its content and the actual intention of the parties.

Our expert Beau Vanderstraeten explains: “An NDA should first and foremost protect information, not unintentionally define the contours of the deal. As soon as you include exclusivity, pricing mechanisms or a negotiation timetable in a confidentiality agreement, you increase the risk that the other party will read more into it than confidentiality alone and that you will find yourself with both feet in a deal that, for you, is not yet a deal.”

The same often applies in practice to a letter of intent or LOI, term sheet, Heads of Terms, and similar documents.

In this blog, we therefore provide a number of practical points of attention and useful guidelines in this context.

Drafting an NDA: Keep It Simple

A classic NDA essentially has one function: to protect confidential information during an acquisition process, for example during exploratory discussions, negotiations and the sharing of due diligence information.

That is useful and often necessary.

In practice, however, an NDA regularly evolves into a document that also includes other arrangements, such as:

• exclusivity;
• arrangements regarding the conduct of a due diligence review;
• the timing of the acquisition process;
• pricing or valuation mechanisms;
• agreements on next steps and the content of a subsequent sale and purchase agreement, such as an SPA or APA.

Parties should be careful with this. As soon as such elements find their way into the text, the document is no longer only about protecting confidential information. After all, an NDA is, in essence, an enforceable agreement. The question then arises whether, in that case, expectations regarding the deal itself, or perhaps even already binding agreements, are being recorded at the same time.

Today, there is an additional point of attention. More and more NDAs are being drafted, in whole or in part, with the help of artificial intelligence (AI). This can be an efficient starting point, especially when speed is important or when a party wants to prepare an initial draft itself. Precisely then, however, extra vigilance is required. An AI-generated NDA often looks convincing, but may in practice contain provisions that are legally too broad, too vague, outside the intended scope or simply unnecessary for what an NDA is actually supposed to do. Anyone using AI should therefore ensure that the document is carefully reviewed to confirm that it is legally valid, substantively correct, does not regulate more than necessary and properly defines confidentiality without including counterproductive clauses.

So keep an NDA simple and use the document for what it is intended to do: create a confidential environment for the acquisition process.

It is not the label, but the content that matters

Under Belgian contract law, the parties’ agreement on the essential points is, in principle, sufficient for a contract to be formed. In other words, as soon as the parties agree on what they wish to arrange, for example a price for the transfer of shares or a business, a legally binding obligation may already arise and the sale may be concluded, even if no separate sale and purchase agreement has been signed.

Put differently: the fact that the title of the agreement is “NDA” or “Confidentiality Agreement” does not automatically mean that the document will be regarded as a mere confidentiality agreement. If the text also contains provisions on, for example, exclusivity, an indicative price, the structure of the proposed transaction, the timing of the process or further steps towards signing and actual transfer, that document may have legal effects that go beyond confidentiality alone.

The same applies to an LOI: here too, the title is not decisive. What matters are the concrete arrangements that the parties include in the text.

Where do things often go wrong in practice and what should you watch out for?

In practice, problems rarely arise from one single clause. Most often, they result from a combination of the text, the timing and the parties’ conduct.

We highlight the following three points of attention.

1. Regulate the confidentiality itself, but do not lose sight of the broader process.

That broader process can rarely be separated from the NDA itself. In an acquisition context, an NDA almost never stands alone. It is usually part of a wider process, including exploratory discussions, due diligence, negotiations, draft documentation and, ultimately, the actual transaction documents. The more clearly the role of each document within that broader process is defined, the smaller the risk that confidentiality, negotiation space and binding commitments start to overlap.

That is precisely why a structured approach has clear added value in practice, not only legally, but also operationally.

Good process guidance or project-based follow-up helps align timing, documentation, expectations and decision moments, thereby increasing the effectiveness of the NDA within the overall project. We are, of course, speaking from our own perspective, but ideally, good guidance should be seen as an investment rather than a cost.

2. Pay attention to wording.

In acquisition matters, wording is sometimes drafted more quickly than is legally advisable. Phrases such as “the parties will complete the transaction”, “the deal has been agreed in principle” or “the final agreement only contains formalities” may create the impression that the parties are already further along in substance than they actually wish to acknowledge.

3. Pay attention to surrounding documentation.

Emails, access to a data room, exclusivity in practice, extensive due diligence, the exchange of draft documents and agreements, or communications indicating that the parties are “in principle agreed” may also contribute to the impression that the acquisition process is already at an advanced stage. During pre-contractual negotiations, parties are in principle free to negotiate and to break off discussions, but they must act in good faith.

Conclusion

A good NDA protects confidentiality. A poor NDA creates expectations.

As soon as an NDA goes beyond the mere protection of confidentiality and the duty of secrecy, you quickly enter the field of consensus, offer and acceptance, pre-contractual liability and unintended binding obligations.

Does your company regularly negotiate with prospective investors, buyers, sellers or commercial partners, and do you want to avoid an NDA doing more from a legal perspective than you intended?

De Groote – De Man will gladly assist you in clearly defining confidentiality, negotiation space and binding commitments.

Feel free to contact our specialist Beau Vanderstraeten for a concrete analysis of your document or matter.

Contact our expert Beau Vanderstraeten

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