Balancing Disclosure and Compliance in M&A Transactions
Overview
In multi-party mergers and acquisitions (M&A), confidentiality and compliance often pull in opposite directions. While acquirers demand complete transparency during due diligence, existing investors or shareholders may have binding agreements that restrict disclosure. Balancing these conflicting obligations requires legal precision and strategic foresight. This is where our M&A disclosure compliance advisory approach becomes essential, helping companies manage disclosures without breaching confidentiality commitments.
At Arora Global Advisory, we often assist clients in navigating this delicate intersection — ensuring that compliance obligations are fulfilled without breaching contractual confidentiality. This case study highlights how one company successfully managed investor sensitivities, disclosure limitations, and legal compliance to close a high-value transaction without disputes.
Deal Content
An Indian consumer technology company, NextGen Retail Tech Pvt. Ltd., was in advanced talks to be acquired by a domestic conglomerate, OmniCart Group.
NextGen’s growth potential was driven by its innovative AI-driven retail analytics platform and its strong investor backing. However, the company’s shareholding structure was complex, involving multiple venture capital investors, each bound by detailed Shareholders’ Agreements (SHAs).
These SHAs included strict confidentiality clauses preventing the company from disclosing sensitive business, financial, and governance information to third parties — even prospective acquirers — without investor consent.
As the due diligence process began, OmniCart requested extensive access to internal records, including:
Client and revenue data
Product source code
Contractual terms with key partners
Historical investor communications
NextGen’s management quickly realized that providing unrestricted access could breach existing confidentiality obligations, exposing them to potential legal claims from investors.
The Confidentiality and Compliance Challenge
The company faced a dual challenge:
Legal Risk: Disclosing investor-related or contractual data without explicit consent could violate confidentiality clauses under multiple SHAs.
Transaction Risk: Restricting disclosure could frustrate the acquirer and delay or derail the transaction.
The management needed a solution that satisfied due diligence requirements without breaching confidentiality or investor rights.
Legal Analysis
Upon review, Arora Global’s advisory team identified several crucial gaps in the company’s existing compliance framework:
Lack of Disclosure Flexibility:
The SHAs did not contain “permitted disclosure” provisions that would allow limited sharing of information for due diligence or regulatory purposes.Ambiguous Investor Consent Mechanisms:
Consent procedures were unclear — requiring unanimous investor approval for disclosures, which was impractical under tight deal timelines.No Data Classification System:
All information was treated as equally confidential, without distinguishing between general corporate data, investor-specific information, and trade secrets.
Strategic Resolution
Arora Global implemented a multi-layered legal strategy that balanced disclosure needs with compliance obligations.
Step 1: Tiered Information Classification
We helped NextGen categorize its data into three levels:
Public/Non-sensitive: General company information and regulatory filings.
Restricted: Business data relevant to operations, clients, and partners.
Highly Confidential: Investor-specific, legal, or IP-protected data.
This classification formed the basis for what could be disclosed under different consent levels.
Step 2: Investor Consent Framework
Our team structured a streamlined investor consent protocol, enabling NextGen to obtain approval for restricted disclosures via board-level notification rather than requiring unanimous written consent from all investors. This significantly accelerated compliance timelines.
Step 3: Enhanced NDA with Acquirer
A robust Non-Disclosure Agreement (NDA) was executed with OmniCart to protect all shared data. The NDA explicitly covered:
Non-circumvention obligations.
Use restrictions (for due diligence purposes only).
Data retention and destruction clauses post-transaction.
Step 4: Controlled Disclosure Environment
We assisted in setting up a Virtual Data Room (VDR) for due diligence, where only pre-cleared documents were uploaded. All access was monitored, and sensitive sections of investor contracts were redacted to protect third-party confidentiality.
Step 5: Governance Alignment and Documentation
Every disclosure and consent was formally recorded to create a compliance trail, ensuring full traceability if disputes arose later.
Outcome
The acquirer gained the transparency it needed for valuation and integration planning, while investors’ confidentiality rights remained fully protected. The transaction successfully closed within schedule, and no post-closing disputes were reported.
Importantly, the consent and disclosure framework developed during this process became a best-practice model for NextGen’s future fundraising and acquisition activities.