Confidentiality is often a primary consideration for parties exploring an acquisition or sale of a privately held banking business. The parties will benefit from carefully considering and mapping the strategic release of transaction related information throughout the course of the proposed transaction. This article explores some common confidentiality issues arising during the acquisition or sale of a bank or bank holding company and various approaches to these issues.

Confidentiality Agreements

Once the decision is made to explore a sale, potential sellers should work with legal counsel to develop a confidentiality agreement that will prohibit potential suitors from disclosing that the bank is for sale. The confidentiality agreement will also prohibit potential buyers from disclosing sensitive information provided during diligence, will address ownership of such information, and will require the return of such information to seller. The seller may insert a provision prohibiting a potential buyer from poaching its employees and customers, and both parties may agree upon the state law that will govern the transaction. The choice of governing state law is important in determining which party will own privileged communications of the seller (see Attorney Client Privilege discussed below). Also, the negotiation of the confidentiality agreement can serve as a useful barometer of the potential buyer’s negotiating style. For example, if the potential buyer is unreasonable in negotiating the confidentiality agreement, this behavior may be a precursor to definitive agreement negotiations, and the seller may want to consider other suitors if possible. In any event, the successful negotiation of the confidentiality agreement is by no means the end of confidentiality considerations.

Due Diligence and Agreement Schedules

After the parties sign the confidentiality agreement, the buyer will conduct due diligence of the target institution by examining loan files, real estate title work, surveys and environmental reports, employee records, and other sensitive information. Although the buyer has entered into a confidentiality agreement and the seller has usually instructed employees involved to keep the proposal in confidence, pragmatists often suspect that the fewer people who know about the proposed transaction, the better. After all, it is human nature to want to share such important information. Therefore, the seller sometimes insists that diligence occur at a remote location such as a hotel room or the attorney’s office or, if at the bank, outside normal business hours. Such steps can greatly reduce the number of individuals who become aware of the proposed transaction. Despite precautionary steps to limit the number of individuals aware of the transaction, the seller often needs to enlist help from at least a couple key employees in assembling due diligence materials, responding to additional buyer information requests, and assembling disclosure schedules to the definitive agreement. Coordinating these efforts in secret while also conducting normal day-to-day operations can be very taxing for key employees. Therefore, sellers often arrange advance support for the key employees to help mitigate the increased workload associated with the secretive transaction related duties.

Announcing the Deal

If the parties to a proposed transaction are successful in negotiating a definitive agreement, they should next carefully plan and coordinate the announcement of the deal to employees and the public. Although the SEC regulates such announcements by publicly traded companies, no such rules apply in the privately held context. Out of respect for their employees, sellers often prefer to tell their employees immediately after the definitive agreement is signed. The buyer then announces the deal to its employees at a meeting coordinated to occur immediately following seller’s employee announcement. Additionally, the parties often develop a joint press release announcing the deal to the public that is distributed on the date of the definitive agreement or very soon thereafter. Further, the buyer may wish to send individual customer communications introducing the buyer and assuring a smooth transition. In any event, it is wise for the parties to agree in the definitive agreement to mutually review and approve public communications regarding the transaction that will be issued prior to closing.

Application Process

Typically the buyer is responsible for submitting required regulatory applications for approval to consummate the transaction. These applications often require inclusion of transaction related documents, including the definitive agreement, financial projections, and other sensitive information. Although it is impossible to keep all preferred information confidential due to federal and state open records laws, the applicant is often able to maintain the confidence of certain sensitive information, such as the purchase price. For this reason, the seller may want to consider including a term in the definitive agreement requiring the buyer to seek confidential treatment for specific materials submitted in the applications.

Attorney Client Privilege

Communications between an attorney and his/her banking clients are generally considered exempt from discovery in litigation under the doctrine of attorney client privilege so long as such communications are not otherwise disclosed to third parties. When a bank is up for sale, a number of issues arise involving the ownership and preservation of this privilege. Although the general rule is that privileged communications pass to the buyer following the sale and communications relating to deal negotiations stay with the seller, transaction structure and applicable state law can alter this result. Therefore, it is important for the parties to consider issues relating to attorney client privilege and draft provisions in the definitive agreement in an attempt to achieve the desired result. Courts generally honor such contractually agreed upon allocations of privilege.


The M&A process involves a number of issues regarding confidentiality of sensitive information, and a well-developed plan is essential to preserve that confidence.