The protection of Due diligence information is paramount to a sound business deal. A company is required to share a large amount of information about its operations, finances, human resources, technology, and intellectual property during the due diligence phase of a merger and acquisition. This information can include trade secrets, information about clients, employee data, manufacturing techniques, and strategic plans. A target company must take the necessary measures to protect the information provided during due diligence.
While proprietary information must be released during the due diligence period, the target company must take seriously the protection of Due diligence information. The target can safeguard its interests through three important ways a company can:
Require Non-Disclosure Agreements
Due diligence information protection starts with a non-disclosure agreement — commonly referred to as an “NDA” – a contract that prohibits the party receiving proprietary information from revealing that confidential information. An NDA makes sure confidential information is not revealed to unauthorized third parties or competitors, and specifies that the data disclosed cannot be used for any other purpose than evaluating the potential deal at hand.
A solid non-disclosure agreement should include certain elements, including:
- The parties involved in the agreement
- Which information is confidential
- How the receiving party can use the information
- The duration of the confidentiality obligation
- How the information should be returned
- Any exclusions to confidential information
- Any permissible disclosure of the information
- Legal remedies in the event a party breaches the agreement
A well-drafted NDA can also set expectations for the parties involved in a transaction and demonstrate the targeted company’s competitive advantage.
Redact Sensitive Details from Shared Data
Redaction removes sensitive information from a company’s proprietary data before that data is shared during the due diligence period. Redaction conceals information that is not necessary for the prospective buyer to view in connection with things like trade secrets, intellectual property, client lists, or internal business strategies. Redaction can help reduce the risk of intentional or inadvertent data breaches, and minimizes the potential exposure of information to competitors. Redaction is not only necessary to safeguard confidential information, but also to build confidence with potential investors by demonstrating a commitment to data protection.
During the redaction process in the due diligence period, a company should first review documents to identify whether they contain proprietary information. Next, specialized software can be used to highlight and obscure the information that should be hidden. Although a less common and more time-consuming method, information can also be manually redacted by printing documents and marking the redacted areas with a black marker before being scanned back into the system.
Use Data Rooms
Using a physical or virtual data room can help control access to a company’s sensitive information. Not only can an administrator authorize certain individuals to view the documents, but they can also track user activity. An administrator can monitor who has viewed each document and see when they were viewed. Different permissions can be set for each user.
Placing all due diligence information protection documents in one secure location reduces the risk that information will be disseminated across multiple platforms. In addition, data stored in a virtual data room is typically encrypted, and multi-factor authentication is required, providing further security and preventing unauthorized access. In a physical data room, documents can be watermarked to help deter any data leaks.
Contact an Experienced New York Business Attorney
If your company is preparing for the due diligence process, it’s essential to have a skillful business attorney on your side who can help you navigate this phase of a business sale. Make sure you have the proper due diligence information protection practices in place. Providing high-quality legal services and knowledgeable representation, Brinen & Associates advises clients regarding a broad range of business matters, including those involving all aspects of due diligence. Call (212) 330-8151 or send us a message to learn more about how we can assist you.