Exclusivity period in M&A

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In the M&A context, an exclusivity period means that for a certain period of time, the seller agrees to negotiate only with one potential buyer.

From the buyer’s perspective, it is beneficial to have a longer exclusivity period for the following reasons:

1. A longer exclusivity period gives the buyer more time to conduct due diligence on the target company. This helps the buyer gain a better understanding of the company and identify any potential risks or issues.

2. The seller is restricted from entertaining offers from other potential buyers during the extended period. This reduces competition and increases the buyer’s chances of securing the deal.

3. The buyer can gather information through the due diligence process and engage with the senior management of the target company. This allows the buyer to refine its offer and negotiate from a better position.

4. With exclusivity, the buyer doesn’t need to worry that the seller is using the buyer as a leverage to attract better offers from other parties.

From the seller’s perspective, it is better to have a shorter exclusivity period for the following reasons:

1. A shorter exclusivity period encourages the buyer to proceed with the deal expeditiously.

2. A longer exclusivity period means that the seller may lose the opportunity to sell the business to other potential buyer who may offer better terms.

3. A longer exclusivity period prolongs the overall process of closing the deal.

This post first appeared on LinkedIn on 29 June 2023.

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