If you are a buyer negotiating 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 include an exclusivity clause in the term sheet or heads of agreement (HoA). This clause ensures that the seller agrees not to engage in negotiations with other parties during an agreed period, allowing the buyer to negotiate exclusively with the seller.

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. Without clear wording, there may be disputes about the enforceability of the exclusivity clause. Furthermore, from the buyer’s perspective, it’s beneficial to include “break fees” or other compensatory terms in the event the seller violates the exclusivity clause. This adds an extra layer of protection for the buyer.

From the seller’s perspective, the seller would want the exclusivity period to be as short as possible to avoid being restricted if there are other potential buyers.

In short:

1. Include an exclusivity clause in term sheet or HoA.
2. State that the exclusivity clause is binding.
3. Specify when the exclusivity period will end.

#malaysiancorporatelawyer

#mergersandacquisitions

This post was first posted on LinkedIn on 14 February 2025.