When negotiating an NDA, buyers will often ask for something called a “conflicts check”. This DealNote® is focused on explaining this concept and how we see our client and their legal counsel approach this.
In a sale process, an NDA is put in place between the seller (disclosing party) and the buyer (receiving party) to protect the seller’s information. During the negotiation of an NDA, some strategic buyers and/or larger private equity firms will ask for a “conflicts check”.
A conflicts check is the right to learn the selling Company’s name immediately after signing, before any other confidential information changes hands. The logic is straightforward: buyers, particularly larger strategics and private equity firms, want to confirm they don’t already own a competing business, aren’t already in a deal with the same company, or don’t have some other conflict that would make pursuing the process a poor use of time for either side. By the time a buyer learns the name under this provision, they are already bound by the NDA’s confidentiality obligations, which is what makes the request a standard and generally low-risk one for sellers to grant.
Sellers should still understand how a conflicts check provision typically works before agreeing to it: the typical length of time available for the check, the confidentiality applies to the name of the company, and more.
Business owners should work closely with their M&A legal counsel to understand this provision, should it arise during the sale process, to be ready to respond and get an NDA in place.
Have a great day everyone,
Ryan Kirby
Partner
