How Can a Non-Disclosure Agreement Protect My Business During an Acquisition or Business Merger?

non-disclosure, DuPage County mergers and acquisitions lawyersIf you are a business owner, you have probably poured a great deal of your time and money into growing your business. If you are considering a business merger or acquisition, it is essential that you take steps to protect your business. During a business transaction, confidential and proprietary information is often discussed. You may even share trade secrets or access to confidential software or computer files. In situations such as these, a non-disclosure agreement may be needed to ensure that the company given access to valuable information does not use it to your detriment.   

Acquisitions and Mergers

The terms “merger” and “acquisition” are often misunderstood. Many people assume that these words mean the same thing, but there are important differences between these two processes. When one company purchases another company, this is referred to as an acquisition. The company that was purchased no longer exists.

A strategic remix acquisition involves the buyer purchasing a business and then integrating the operations and product line into its own business. A private equity acquisition involves the purchase of a company which is improved and then sold at a higher cost for profit. An alphabet acquisition is an agreement between the two companies that contains elements of a strategic remix acquisition and private equity acquisition.

When two companies join together to form one new company, this is called a merger. In 2017, Dow Chemical and DuPont merged into the company DowDuPont. This $130 billion merger was one of the largest mergers to occur in the last several decades.

A Non-Disclosure Agreement Can Protect Your Interests

In a business transaction such as a merger or acquisition, confidential information such manufacturing processes, formulas, designs, patent applications, business strategies, proprietary information, and vendor and customer lists may need to be shared with the other party. In order to ensure that this information is not used to the disclosing party’s disadvantage, many mergers and acquisitions involve non-disclosure agreements. Also called confidentiality agreements or NDAs, non-disclosure agreements identify what information is confidential and may not be shared with other third parties.

An NDA may also contain provisions requiring the recipient party to destroy or return confidential information at the request of the disclosing party. If the recipient party breaches a non-disclosure agreement, such as by using the confidential information to start a business very similar to the disclosing business, the disclosing business has the right to seek monetary damages.

Contact a DuPage County Business Law Attorney

For help with drafting a non-disclosure agreement, buying or selling an existing business, and more, contact Stock, Carlson & Duff LLC. Call 630-665-2500 today to schedule a consultation with an experienced Wheaton business lawyer to discuss your needs.

 

Sources:

https://www.investopedia.com/investing/biggest-mergers-in-history/

https://www.forbes.com/sites/allbusiness/2017/10/28/non-disclosure-agreements-for-mergers-and-acquisitions/

Examining the Different Types of Business Mergers and Acquisitions

DuPage County mergers and acquisitions lawyerMergers and acquisitions are highly misunderstood legal terms, and are often considered to be synonymous among small business owners and the general population. However, there are some distinct differences between the two; understanding them and how they change the dynamics of a business transaction can be critical for ensuring a company’s future success.

Mergers

A merger is a business transaction in which two companies join together to form one company. Many times, one of the two companies ceases to exist. One example is the2007 merger between Digital Computers and Compaq in which Digital Computers was absorbed by Compaq.

Yet, not all mergers are the same. Instead, there are five types of mergers, all of which are listed and described below:

  • Horizontal merger. This involves two companies in direct competition with one another, both in market and product line.
  • Vertical merger. This is an agreement between two companies in a similar industry, but different type of business. An example would be a merger between a framing company and a drywall company.
  • Market-extension merger. An agreement between companies in different markets but with similar products.
  • Product-extension merger. An agreement between companies in similar markets that sell distinct products.
  • Conglomerate merger. Two companies with seemingly nothing in common merge. An example would be an electronics company merging with a company that sells car parts.

Acqusitions

An acquisition is a business transaction in which one company purchases another company. The latter of ceases to exist. In this scenario, the buyers take over the operations and decision-making of the purchased company. Many times, acquisitions have negative connotations, while mergers are viewed in a positive light. Whatever the case may be, it’s important to know that there are three main acquisitions

  • Strategic Remix acquisition. This is an agreement in which the acquired asset, including operations and product line, are combined with an existing business to increase profit.
  • Private Equity acquisition. This is when a company buys another business at a cheap price, pumps it full of resources, and then sells it at a higher cost.
  • Alphabet acquisition. An agreement between two companies that is a hybrid of the other two types of acquisitions. When this happens, the buyers take on the operations and product line of the acquired company with the intention of waiting to see how the acquired company does. If they improve, the buyers have the choice to sell or pump in more resources and potentially keep running the company for their own profit.

If you are looking to enter the world of mergers and acquisitions, contact Stock, Carlson & Duff LLC. Backed by more than 40 years of legal and business experience, our Wheaton small business attorneys can help you make informed decisions about your organization’s future. As a small business ourselves, our legal team knows how important a transaction like this can be for your business’ future. Call 630-665-2500 to schedule a consultation with our office today.

Sources:

https://www.investopedia.com/terms/m/mergersandacquisitions.asp

https://www.investopedia.com/terms/m/mergersandacquisitions.asp

https://www.investopedia.com/terms/m/mergersandacquisitions.asp