Exclusivity in M&A negotiation

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Today’s post is on exclusivity when negotiating an M&A deal.

If you are a buyer entering into a negotiation to acquire business or shares of a company, you would want to ensure that you do not incur costs during the negotiation only for the seller to end the negotiation and sell to another party.

A buyer would want to ensure that the seller is not using the buyer to attract higher offers.

Therefore, the buyer would usually want to have an exclusivity clause in a term sheet or heads of agreement (HoA) whereby the seller undertakes not to enter into negotiations with other parties for the sale in question and the buyer may negotiate exclusively with the seller during an agreed period.

If other terms in the term sheet or HoA are meant to be non-binding, it is important to specifically state that the exclusivity clause is binding. The parties should also specify clearly when the exclusivity period will end.

From the seller’s perspective, the seller would want the exclusivity period to be as short as possible so that the seller is not restricted if there are other potential buyers.

In short:
1. Have an exclusivity clause in term sheet or HoA.
2. State that the exclusivity clause is binding if other terms are non-binding.
3. Specify when the exclusivity period will end.

#malaysiancorporatelawyer
#mergersandacquisitions

This post was first posted on Linkedin on 5 January 2022.

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