Confidentiality Breach in M&A Due Diligence
Overview
Confidentiality is the cornerstone of every merger and acquisition (M&A) process. Before any deal moves forward, both parties must exchange sensitive financial, legal, and commercial information. If these disclosures aren’t handled correctly, the entire transaction can face reputational, financial, and legal setbacks. In such scenarios, expert M&A confidentiality breach advisory becomes critical to safeguarding both the deal and the stakeholders involved.
At Arora Global Advisory, we’ve witnessed several instances where confidentiality breaches occur not from intentional misconduct, but from procedural lapses or poorly structured agreements. This case study explores one such real-world challenge, demonstrating how proactive legal advisory can prevent an M&A deal from collapsing.
Background
A mid-sized technology company, Tech Nova Pvt. Ltd., entered into acquisition talks with Inno Core Group, a multinational conglomerate.
The acquisition promised strategic synergies — Inno Core sought Tech Nova’s proprietary software capabilities, while Tech Nova aimed to access Inno Core’s global distribution network.
However, Tech Nova’s cap table included two minority investors holding 22% equity. Their Shareholders’ Agreement (SHA) had stringent confidentiality clauses preventing disclosure of company data or transaction details to third parties without prior consent.
In the haste to start the due diligence, Tech Nova’s management shared confidential documents — including product blueprints, revenue data, and key client contracts — with Inno Core’s advisors without notifying the minority investors.
The Confidentiality Challenge
Shortly thereafter, one investor raised a formal objection, accusing TechNova of breaching the confidentiality clause and violating the shareholder agreement. The investor’s concern wasn’t unfounded — sensitive R&D information and client data were disclosed to an external party without authorized consent.
This dispute caused immediate friction:
The investor threatened legal action under breach of contract.
Inno Core paused the acquisition citing internal governance concerns.
The deal’s credibility suffered, delaying the transaction indefinitely.
What began as a promising acquisition had now turned into a potential legal and reputational crisis.
Legal Analysis
The case hinged on two key legal considerations:
Confidentiality Clauses and Contractual Obligations
The SHA explicitly mandated prior written consent from all shareholders before sharing confidential data. Tech Nova’s actions directly contradicted this clause, creating a contractual breach.Absence of a “Permitted Disclosure” Provision
Well-drafted SHAs and NDAs typically include exceptions for disclosures “made for due diligence or investment evaluation purposes.” Unfortunately, Tech Nova’s agreement lacked this flexibility, leaving no legal safe harbor for management’s actions.
Without a clear legal pathway, even good-faith disclosures became risky.
Strategic Resolution
When Arora Global was brought in, our legal team initiated a multi-step strategy to stabilize the transaction and restore trust among all parties.
Step 1: Stakeholder Reconciliation
Open communication was facilitated between management and the minority investors. The intent behind the disclosures — to expedite the deal — was clarified, and reassurance was provided that no confidential advantage had been misused.
Step 2: Retrospective Legal Cover
A tripartite Non-Disclosure Agreement (NDA) was drafted involving TechNova, InnoCore, and the minority investors. This agreement clearly defined:
The scope of shared information
The purpose of its use
Liability in case of misuse
Step 3: Amendment to Shareholders’ Agreement
Arora Global helped revise the SHA to include “permitted disclosure” clauses for future M&A or fundraising scenarios, ensuring the company wouldn’t face similar bottlenecks.
Step 4: Secure Data Handling
A Virtual Data Room (VDR) with restricted, audited access was established for ongoing due diligence. All confidential data was digitally watermarked and tracked.
Outcome
Within weeks, investor concerns were resolved through transparency and legal reinforcement. Due diligence resumed smoothly, and InnoCore successfully completed the acquisition within the revised timeline.
The case reinforced an essential truth: even minor oversights in confidentiality management can delay — or destroy — multimillion-dollar deals.