Confidentiality Agreements in Investment Banking

Implications, and why to avoid them if possible

Over 1.8 million professionals use CFI to learn accounting, financial analysis, modeling and more. Start with a free account to explore 20+ always-free courses and hundreds of finance templates and cheat sheets. Start Free

Why Do Banks Try to Avoid Confidentiality Agreements?

Whenever possible, investment bankers try to avoid entering into confidentiality agreements as a condition of receiving confidential information, particularly prior to obtaining a signed engagement letter.

Confidentiality agreements (particularly those related to an M&A process) often contain provisions that can have unforeseen consequences on other areas of the bank’s business or increase the bank’s risk level in the event of a dispute.

confidentiality agreements in investment banking

What are the Issues with Confidentiality Agreements?

Examples of possible issues include standstills, employee non-solicit provisions, and provisions that require the destruction of all documents (including the bank’s own due diligence files) that contain, or are based upon, the confidential information.

Investment bankers should use standard-form engagement letters that include customary confidentiality provisions in order to make a separate confidentiality agreement unnecessary.

If the bank absolutely must enter into a confidentiality agreement, either before or after being engaged, the investment banker should use the bank’s own agreement. If required to use another form of agreement, it should be reviewed and approved by the bank’s legal department before being signed.

How to Get Around Signing a Confidentiality Agreement?

In cases where the bank provides information to a third party on behalf of a client (as is the case in a sell-side M&A mandate), the investment banker will first obtain the client’s approval of such disclosure to the third party. The information should be provided only if the third party signs a confidentiality agreement on terms satisfactory to the client.

On a buy-side mandate, in addition to any confidentiality obligation that may exist between the investment banking client and the target company, the bank may be requested to execute a separate confidentiality agreement with the target company as a condition of receiving confidential information concerning the target. In such a case, the bank should resist signing this and should remind the target company that the client has already signed an agreement and is responsible for any breach of confidential information by the bank.

If that is not acceptable to the target company, investment bankers may execute an acknowledgment agreeing to be bound by the confidentiality obligations of the agreement between the client and the target. If an investment banker is required to enter into such an acknowledgment, it should be reviewed and approved by the legal team before being signed.

More Investment Banking Resources

We hope this has been a helpful guide on the challenges with confidentiality agreements in investment banking. Please visit some of our most popular resources, including:

0 search results for ‘