How to Protect Your Company’s Secrets During M&A Talks with a Competitor

It’s a scenario that keeps many founders up at night: a larger competitor expresses interest in acquiring your company, but you can’t shake the feeling that their real motive is to peek under the hood. In the software and technology sectors—where proprietary code, customer data, and product roadmaps are often the crown jewels—this concern is not only valid, it’s increasingly common.

So how do you engage in serious M&A discussions without giving away the very assets that make your company valuable?

This article outlines the key precautions founders and CEOs should take before sharing sensitive information with a prospective buyer—especially when that buyer is a direct or adjacent competitor.

1. Understand the Risk: Why Competitors Initiate “Fake” M&A Talks

Not all acquisition interest is genuine. In some cases, a competitor may initiate discussions to:

• Gain insight into your product roadmap or IP strategy
• Understand your customer acquisition channels or pricing model
• Benchmark your performance metrics against their own
• Preemptively neutralize a rising threat in the market

While most acquirers act in good faith, the risk of misaligned intent is higher when the buyer is a strategic competitor. That’s why your information-sharing strategy must be carefully staged and legally protected.

2. Use a Two-Stage Diligence Process

One of the most effective ways to protect your company is to structure the diligence process in two stages:

Stage 1: Pre-LOI (Letter of Intent)

At this stage, limit disclosures to high-level, non-sensitive information. This might include:

• Basic financial metrics (e.g., ARR, EBITDA, growth rate)
• Customer concentration (without naming clients)
• General product overview (without source code or architecture)
• Market positioning and competitive differentiation

As we noted in Completing Due Diligence Before the LOI, this phase is about giving just enough information to validate buyer interest—nothing more.

Stage 2: Post-LOI

Only after a signed LOI with exclusivity and deal terms should you consider sharing more sensitive materials. Even then, disclosures should be staged and monitored through a secure data room with access logs and watermarking.

3. Draft a Robust NDA—And Enforce It

Before any information is shared, insist on a well-crafted non-disclosure agreement (NDA). But not all NDAs are created equal. A strong NDA should include:

• Explicit definitions of “Confidential Information”
• Restrictions on use (e.g., for evaluation purposes only)
• Non-solicitation clauses (to protect employees and customers)
• Non-reverse engineering provisions (especially for software/IP)
• Survival clauses that extend beyond the deal timeline

Firms like iMerge often work with legal counsel to ensure NDAs are tailored to the nuances of software and SaaS businesses. If a buyer pushes back on standard protections, that’s a red flag worth noting.

4. Limit Access to Sensitive IP and Code

Even in post-LOI diligence, avoid sharing raw source code or proprietary algorithms unless absolutely necessary—and only under strict controls. Consider these alternatives:

• Provide code walkthroughs via screen share rather than file transfer
• Use third-party code audits or escrow services to validate IP ownership
• Redact or anonymize sensitive customer data in sample datasets

In AI and SaaS deals, buyers may request insight into training data or model architecture. As we explored in What should we disclose about our AI training data and methods to a potential acquirer, disclosures should be carefully scoped to avoid exposing trade secrets or triggering compliance risks.

5. Vet the Buyer’s Intent and Track Record

Before engaging deeply, do your own diligence on the buyer. Ask:

• Have they acquired similar companies before? What happened post-acquisition?
• Do they have a reputation for fair dealing—or for fishing expeditions?
• Are they actively acquiring, or just exploring the market?

Advisors like iMerge often maintain proprietary databases of buyer behavior and can help assess whether a suitor is serious or speculative. This intelligence can be invaluable in deciding how far to proceed.

6. Use an M&A Advisor to Control the Process

One of the most effective ways to protect your company is to run a structured, advisor-led process. A seasoned M&A advisor can:

• Pre-qualify buyers and filter out bad actors
• Stage disclosures to align with deal progress
• Negotiate NDAs and LOIs with protective language
• Maintain competitive tension to discourage gamesmanship

As we discussed in 8 Ways Top M&A Advisors Increase Value During the Transaction, a well-run process not only maximizes valuation—it also minimizes risk.

7. Prepare for the Worst—But Plan for the Best

Even with all precautions, there’s always some risk in opening the kimono. That’s why it’s important to:

• Document what was shared and when
• Watermark sensitive documents to track leaks
• Retain legal counsel in case of NDA breach

But don’t let fear paralyze you. Many successful exits involve strategic buyers, including competitors. The key is to manage the process with discipline, not distrust.

Conclusion

Engaging with a competitor in M&A talks doesn’t have to mean exposing your company to undue risk. With the right legal protections, staged disclosures, and experienced advisors, you can explore strategic opportunities while safeguarding your most valuable assets.

Founders navigating valuation or deal structuring decisions can benefit from iMerge’s experience in software and tech exits — reach out for guidance tailored to your situation.