The Blind Teaser and the NDA: Controlling Disclosure From the First Contact

What a blind teaser contains and what it leaves out

The teaser has five parts: a one-line description of the business in terms of what it does and for whom, headline financials for the last two or three years and the current run rate, the three or four attributes that make the business attractive, the geography at a level that does not identify the company, and the transaction the seller is seeking. It also says who to contact, which is the firm, and what the next step is, which is the NDA.

What it leaves out is everything that could identify the seller. No company name, no city, no named customers, no product names, no founding year if the industry is small enough that the year narrows it to one firm. Financials are rounded. Descriptions are generic enough to fit several companies. "A specialty contractor serving utility customers in the Mountain West with $42 million of revenue and $5.1 million of adjusted EBITDA" is a teaser. "A Colorado Springs electrical contractor founded in 1998 whose largest customer is a regional utility" is a press release.

The attorney should run the identification test with the client. Give the client the teaser and ask who in the industry could read it and know. If the answer is anyone, revise. In concentrated industries this may mean giving a wider geography or a broader category than the client would prefer, and the attorney should explain that the trade is worth it.

Why the attorney drafts the NDA, and what it has to do

Many buyers, especially private equity firms, may offer their own NDA form. The attorney should ordinarily start with the seller's form, subject to the client's instructions and the parties' negotiation. The seller's form is drafted for the seller's risks, and in an attorney-run process there is a practical reason to begin with that paper.

The NDA has to do several specific things. Define confidential information broadly enough to cover the teaser, the CIM, the data room, management meeting content, and the fact that the company is for sale. Restrict use to evaluating the transaction. Limit disclosure to the buyer's representatives who need to know, and make the buyer responsible for their compliance. A filed M&A confidentiality agreement illustrates these common mechanics, including transaction-purpose limits, representative controls, protection for the fact of discussions, and return or destruction provisions. [1] Include a non-solicitation of employees for a defined period, and for strategic buyers, consider a non-solicitation of customers. These provisions are not automatically enforceable everywhere, so counsel should confirm the applicable federal and state rules before relying on them. The FTC states that its Noncompete Rule is not in effect or enforceable and that state law remains relevant. [2] Address what the buyer may do with information it already had or that becomes public. Name the governing law and the forum.

For private equity buyers, pay attention to the definition of representatives and the question of portfolio companies. A fund that operates a competitor in its portfolio should be bound not to share the seller's information with that company, and the NDA should say so. For strategic buyers, the non-solicitation and the restriction on contacting customers, suppliers, or employees matter most, because a strategic buyer who walks away with the seller's customer list has gained something whether or not it buys.

Negotiating the NDA without losing the buyer

Buyers will often mark up the NDA. The attorney should decide in advance which terms are firm and which are open, so that negotiation can take days rather than weeks. Terms usually worth holding include the non-solicitation of employees, the restriction on contact with the seller's customers and employees, and the obligation not to disclose that the company is for sale, subject to the client's objectives and applicable law. Terms usually open include the length of the confidentiality period, the residuals clause that private equity firms often request, and the mechanics of return or destruction.

A buyer who refuses a reasonable NDA has given the attorney a signal, not conclusive proof of motive. Either the buyer is not serious, or the buyer wants the information more than the deal. In either case, the attorney should discuss it with the client before sending the CIM, and the client decides.

Track every NDA in one place: who received it, who signed, which version, and what was changed. The attorney will need this record in the offers phase when deciding who gets data room access, and again at close when the purchase agreement addresses what happens to materials held by buyers who did not win.

Sequencing the first contact

The first contact with a buyer is a short message from the firm, with the teaser attached and the NDA attached or linked. The message says that the firm represents a company meeting the teaser's description, that the company is exploring a sale, and that the CIM is available on execution of the NDA. It gives a date by which NDAs should be returned if the buyer wants to be included in the first round.

The attorney or a designated associate makes every contact. A buyer's first impression of the process is the first message, and a message that comes from counsel, is specific about next steps, and is consistent across all recipients signals a process that is run with discipline. That signal can affect how seriously buyers treat the IOI deadline later.

Log every response. A buyer who passes should be asked why, because the reasons can feed back into how the teaser is positioned for the next wave. A buyer who signs gets the CIM the same day, with a note on the IOI timeline.

The client's role before the first message goes out

The client approves the teaser, the NDA form, and the outreach message before anything is sent, and the client reviews the buyer list the messages will go to, which is the subject of the next phase. The client should also know what to do if a buyer contacts the owner directly, which happens. The answer is to refer the buyer to the firm and not to discuss the business, and the attorney should put that instruction in writing.

One thing to do this week: pull your firm's current NDA form and read it as a seller's counsel in a sale process. If it does not address portfolio companies, non-solicitation of employees, or the fact of the sale itself as confidential information, ask whether it should be revised now, before a client needs it on a Tuesday afternoon.

How Acquivo Pro fits

Acquivo Pro generates the teaser from the client questionnaire and the data room, and the firm edits it to pass the identification test before the client approves it. The platform then tracks NDA flow for every buyer on the prospect list in a single pipeline: who received the teaser, who signed, which version, and who is cleared for the CIM. The attorney drafts and negotiates the NDA, makes every buyer contact, and decides with the client who advances. To walk through a process on a client you have in mind, request a demo through the Contact page.