M&A intermediaries . . . beware of time bombs hiding in confidentiality clauses in Seller/Target company contracts

In AriZona Beverages USA, LLC v. Evercore, Inc., (Sup. Ct., Nassau Cnty,. Aug. 27, 2024) (Index #608480/2024), the Court held that a merger and acquisitions intermediary (which was acting as a broker between a prospective seller and prospective buyers) breached a confidentiality clause that was in a contract between the seller and the seller’s customer.

This case, which involves a situation that is common in M&A deals, serves as an important reminder to M&A intermediaries regarding the importance of reviewing the seller’s contracts to ensure whether there is a confidentiality clause that prohibits the contract’s disclosure to prospective buyers.

The M&A intermediary (Evercore) uploaded to its deal data room an electronic copy of a contract between VoBev LLC (the seller) and AriZona Beverages (the seller’s customer). VoBev is the manufacturer of AriZona Beverages’ famous “99 cents – Big Can” drinks. Apparently, that contract is a cornerstone of AriZona Beverages’ marketing strategy and it prohibited disclosure of its terms to a third party (e.g., prospective buyers) without AriZona Beverages’ advance approval.

As is typical in NDAs (non-disclosure agreements–also known as “confidentiality agreements”) between prospective buyers and M&A intermediaries (such as Evercore) , prospective buyers are prohibited from publicly disclosing (or using for any purpose other than a potential acquisition of the seller) the seller’s information that is provided to prospective buyers during the due diligence process.

Nevertheless, the fact that Evercore (as M&A intermediary) may have been under a separate NDA with the prospective buyers was irrelevant. Accordingly, AriZona Beverages prevailed on its claim that VoBev’s M&A representative (Evercore) breached the confidentiality obligation in the underlying contract between VoBev (the seller) and AriZona Beverages (the seller’s customer).