Standstill Provisions in NDAs: What They Are and When You Need Them

What Is a Standstill Provision?

A standstill provision is a clause in an NDA that prevents one or both parties from taking certain aggressive actions during the period of confidential information sharing. Most commonly, a standstill prevents the receiving party from making an unsolicited bid to acquire the disclosing party, purchasing its shares, or soliciting its shareholders — actions that could be facilitated by the confidential information obtained under the NDA.

Standstill provisions are sometimes called "standstill agreements" or "no-action clauses" and are most commonly found in NDAs related to potential M&A transactions, strategic partnerships, and significant business relationships where one party could use shared information to gain an acquisition advantage.

Why Standstill Provisions Exist

Preventing Information Misuse

When a company shares its financial data, customer information, and strategic plans under an NDA, it creates a significant information asymmetry. Without a standstill, the receiving party could use this inside knowledge to launch a hostile takeover bid at an opportune moment, knowing exactly what the company is worth and where its vulnerabilities lie.

Enabling Open Information Sharing

Standstill provisions encourage companies to share information more freely during exploratory discussions. If you know the other party cannot use the information to mount a hostile bid, you are more willing to open up about your business details.

Protecting Shareholder Value

For publicly traded companies, a surprise takeover bid can disrupt operations, distract management, and potentially undervalue the company. A standstill allows the company's board to maintain control over any sale process.

Maintaining Negotiating Position

Without a standstill, the receiving party could use the threat of a hostile bid as leverage in negotiations. A standstill takes this threat off the table and promotes a more balanced negotiation.

Key Elements of a Standstill Provision

Prohibited Actions

A typical standstill prevents the restricted party from:

• Acquiring shares — Purchasing, offering to purchase, or agreeing to acquire shares or other securities of the protected party
• Making tender offers — Launching a public offer to buy shares directly from shareholders
• Proposing acquisitions — Publicly proposing any merger, business combination, or acquisition involving the protected party
• Soliciting proxies — Seeking to influence shareholder votes or board composition
• Forming groups — Joining with others to take any of the above actions
• Requesting waivers — Publicly asking the board to waive the standstill provisions
• Supporting third parties — Providing financial or other support to third parties attempting any of the above actions

Duration

Standstill provisions typically last for one to two years from the date of the NDA. The duration should be long enough to prevent an immediate hostile bid after discussions end but not so long that it unreasonably restricts the receiving party's future options.

Geographic and Entity Scope

Specify exactly which entities are bound by the standstill. If the receiving party is part of a larger corporate group, the standstill should bind the parent company, subsidiaries, and affiliates to prevent circumvention through related entities.

Exceptions and Carve-Outs

Common exceptions to standstill provisions include:

• Invited offers — If the protected party's board invites the restricted party to make an offer
• Third-party transactions — If a third party announces a bid for the protected party, the restricted party may be released from the standstill
• Public information — Actions based solely on publicly available information (not confidential information obtained under the NDA)
• Board fiduciary duties — Recognition that the board may need to consider all offers to fulfill its fiduciary duties to shareholders

When to Include a Standstill Provision

M&A Discussions

The most common use case. When two companies are exploring a potential merger or acquisition, a standstill prevents either party from bypassing the negotiation process with a hostile bid.

Strategic Partnership Evaluations

When exploring a partnership with a larger company that could potentially acquire you, a standstill protects against the partner using partnership discussions as a pretext for gathering acquisition intelligence.

Joint Venture Negotiations

In joint venture discussions, particularly between companies of different sizes, a standstill ensures that the larger partner does not use the information shared during negotiations to pursue an acquisition instead.

Investor Due Diligence

When a significant investor or private equity firm is conducting due diligence, a standstill can prevent them from using the information to launch an unsolicited bid at a depressed valuation.

When Standstill Provisions Are Not Needed

Routine Business NDAs

Standard NDAs between companies of similar size for regular business purposes (vendor relationships, service agreements, partnership discussions) typically do not need standstill provisions.

Employment NDAs

Employee confidentiality agreements do not typically include standstill provisions since employees are not in a position to acquire the company.

Small Business NDAs

When both parties are small private companies with no acquisition capability or interest, standstill provisions are unnecessary and may complicate the NDA without providing meaningful protection.

Negotiating Standstill Provisions

For the Protected Party

• Seek the broadest possible scope of prohibited actions
• Negotiate for a longer duration (18 to 24 months)
• Limit exceptions and carve-outs
• Include non-circumvention provisions covering affiliates and associates
• Require confidentiality about the existence of the standstill itself

For the Restricted Party

• Negotiate a shorter duration (6 to 12 months)
• Include a "fall-away" provision that terminates the standstill if the protected party is in discussions with other potential acquirers
• Ensure exceptions for invited offers and third-party bids
• Resist overly broad definitions of "associates" and "affiliates"
• Preserve the right to make private, confidential proposals to the board

Enforcement Considerations

Standstill violations can be enforced through injunctive relief — a court order preventing the restricted party from proceeding with the prohibited action. Given the speed at which acquisition attempts can unfold, the ability to obtain emergency injunctions is critical.

Include language in the standstill provision acknowledging that a violation would cause irreparable harm and that the protected party is entitled to seek injunctive relief without posting a bond.

Create Your NDA with Standstill Protections

PactDraft can help you generate NDAs with or without standstill provisions, depending on your situation. The platform guides you through the key considerations and creates clear, enforceable provisions tailored to your specific business relationship. Protect your business discussions — generate your customized NDA today.