Exclusivity is a clause found in most Letters of Intent (“LOI”). In the lower middle market, once the seller selects which buyer will continue after the LOI stage, that buyer is granted Exclusivity. Typically, the Exclusivity period comprises 60-90 days, during which time the seller is prohibited from contacting any other buyers about the potential sale. Buyers demand this protection because they will be spending often hundreds of thousands of dollars on diligence providers and considerable amounts of their team’s time. They want to know that you are serious about selling the business to them. From your perspective as the seller, this makes buyer selection at the LOI stage even more important. You don’t want to commit 60-90 days to a group that is merely “kicking the tires” or someone that isn’t able to close the transaction. You also don’t want to reenter the market after three months, a red flag to other interested parties. Keep in mind, if you breach the Exclusivity clause, you will be legally on the hook for reimbursing the buyer’s diligence expenses. It should not be taken lightly.
Graham Gilbert
M&A Done to a Standard
813-668-7855
Disclaimer: This article is for general information purposes and is not intended to be and should not be taken as financial or legal advice. G2 Capital Advisors, LLC is not responsible or liable for any actions taken or not taken as a result of this article. G2 Capital Advisors, LLC assumes no responsibility or liability for any errors or omissions in the content of this article. The information contained herein is provided on an “as is” basis with no guarantees of completeness, accuracy, usefulness or timeliness.
