Make the Deal

CHAPTER 2 Setting Up the Deal: Overview and Confidentiality Agreements

Overview of the Predeal Process

Deals start in many different ways but progress along a relatively standard track. After one party introduces the concept of a deal to the other side, the predeal process kicks in.

If there is sufficient interest in a serious discussion, the first step is to negotiate a confidentiality agreement. This agreement protects the target’s sensitive business information, and requires the deal talks to be kept secret. A confidentiality agreement can also include other key transaction process terms. Those can include:

• A “no-poach” provision (also called “no-hire” and nonsolicitation provisions) that restricts the bidder from trying to hire away the target’s best employees, and
• A “standstill” that prevents the bidder from taking potentially hostile moves against a public company if a friendly deal cannot be negotiated.

If a deal is potentially worth the diligence effort, the bidder may ask for exclusivity. An exclusivity agreement prevents the target or sellers from working with competing bidders during a limited period of time. This gives the bidder breathing room and comfort that the sellers are not negotiating with another bidder in the room next door.

In many cases the parties next go into full contract negotiations. If the deal is complex, they may first lay out the key terms in a term sheet, or in the more narrative form of a letter of intent. Such documents provide a deal summary ...