NDA Markups
August 01, 2023
by a searcher in New York, NY, USA
Curious to compare notes on how other independent sponsors handle NDAs.
When I worked in private equity, our legal counsel used to negotiate NDAs pretty hard, but I wonder how that plays in the microcap market when working with mom and pop brokers where you don't have a committed fund. I would like the protections of a correctly drafted NDA but also don't want to alienate a broker by having too heavy handed of a touch to the markup.
Anyone ever have a broker not show you deals because you were too aggressive in negotiating an NDA?
from The University of Chicago in Naples, FL, USA
- I redline personal liability. Why the redline? In the unlikely event that someone tries to come after the head of the office. If I were looking at a deal personally, I would not strike. And although I have an LLC to shield liability, I won't take the risk on behalf of the organization.
- I redline clauses that allow for a broker to be appointed our attorney-in-fact, power of attorney, or to have authority over our organization. Why the redline? Risk to the organization.
- I redline any agreement that forces me (as the buyer) to be responsible for commission that isn't paid by the seller - EXCEPT in the case where we are in breach. If we are guilty of doing something wrong, they (broker & seller) have every right to be and should be made whole. Why the redline? If we did nothing wrong and the seller was not holding up their end of the agreement with the broker, then that is between the broker and the seller.
- Not a redline per se, but we also don't allow for folks to have full access to our financials or net worth. We can provide a cash balance which has always been sufficient. Why the redline? The family's privacy.
- Do I change venue? Typically no.
- Standard term? Less than 5 years.
We behave and operate in a way that is transparent and in good faith. We will never circumvent a broker and we will respect the broker/seller relationship. And while it is very unlikely that any of the above remarks would be a problem, it is my job to reduce the overall risk of the office.
Just remember - if a broker gets frustrated with your redlines, you are welcome to explain why you need it. If they won't accept your redlines/commentary, just remember it's not personal. There are plenty of buyers for them and there are plenty of brokers for you. Build the relationships and build your network and you'll get where you need to go.
And yes - there are brokers who won't work with me, and there are some brokers/brokerages who we won’t work with. It happens. It's not personal.
from University of California, Los Angeles in London, UK
The more professional firms will have very standard terms in their NDAs which often require no markup, but if there is something you want to change or limit then they are usually open to reasonable requests.
Typical requests are:
- Term limited to 2 years or sometimes 1 year
- Neutral law jurisdictions such as Delaware
- No legal fees
- If there is a non-solicit, then it should be time restricted (1 year typical, even if the NDA term is 2 years) and not include anyone that you did not meet or were made aware of as part of the transaction discussions (as well as anyone who responds to non-targeted advertising per normal language)
Examples of non-typical clauses I see in unprofessional NDAs include:
- Buyer guarantees or some kind of grabby clauses around broker commission. The broker has a contract with the seller for payment of their commission which you as a buyer are not a part of and probably have not seen, so you should not get dragged into any seller/broker disputes. This one screams unprofessional broker.
- Breakup fees
- Excessively long terms, e.g###-###-#### years, or not having any term at all so it's an indefinite agreement.