Exclusivity in M&A

Exclusivity in M&A

In a private #mergersandacquisitions transaction, after initial deal discussions between the parties, the potential acquirer wants #exclusivity (similar to #noshop provisions in public M&A deals) to give the buyer time to finalise the deal. During this time, the target agrees not to negotiate with other potential buyers.

Earlier, 𝗴𝗲𝘁𝘁𝗶𝗻𝗴 𝗲𝘅𝗰𝗹𝘂𝘀𝗶𝘃𝗶𝘁𝘆 𝘄𝗮𝘀 𝘀𝗶𝗺𝗽𝗹𝗲 for the buyers. However, lately, i have observed that 𝘀𝗲𝗹𝗹𝗲𝗿𝘀 𝗱𝗼 𝗻𝗼𝘁 𝘄𝗮𝗻𝘁 𝘁𝗼 𝗴𝗶𝘃𝗲 𝗲𝘅𝗰𝗹𝘂𝘀𝗶𝘃𝗶𝘁𝘆 because it affects their ability to get the best price and terms.

For the buyer, exclusivity is mandatory for the following reasons:

1️⃣ No buyer wants to be a stalking horse. Thus, it needs an exclusivity period (at least 15 days) for due diligence, prohibiting the target from engaging with another bidder in the exclusivity period.

2️⃣ The buyer wants the target to negotiate with the current buyer in good faith.

However, in my experience, i have observed that the buyer gets exclusivity quickly when it does not need one in most of these scenarios; either the 𝗯𝘂𝘆𝗲𝗿 𝗶𝘀 𝘁𝗵𝗲 𝗼𝗻𝗹𝘆 𝗯𝗶𝗱𝗱𝗲𝗿 𝗼𝗿 𝗼𝗳𝗳𝗲𝗿𝘀 𝘁𝗵𝗲 𝗯𝗲𝘀𝘁 𝗽𝗿𝗶𝗰𝗲. In events where the target has other prospects, it does not sign an exclusivity agreement.

Though these agreements are legal, it is challenging for the parties to enforce in reality due to the complexity involved.

Thus, if the seller/its banker does not grant exclusivity, a buyer should 𝘄𝗮𝗹𝗸 𝗮𝘄𝗮𝘆 from the transaction. If the buyer proceeds, there is pressure for the buyer to increase the price post confirmatory #duediligence as the seller will not stop negotiating until it is confident it has the best price.