Private Equity Exclusivity Agreement

Michael: At the end of the buyer, the difficulty is that deals always take longer than expected. When the exclusivity period ends, but the buyer is still working in good faith on the transaction and asking for an extension, he gives some leverage to the seller. Before accepting, the seller can negotiate items in the sales contract to get things done more quickly, or apply for monetary policy. That`s really what the salesman thinks. It shifts some leverage because buyers want the extension of exclusivity to continue to work towards a conclusion. Does exclusivity mean that the agreement is reached? Unfortunately, no. They do so because they know that the most favorable changes in the terms of the contract come when several parties have all invested a considerable amount of time and emotional energy in attendance and are eager to conclude the deal for themselves. Premature exclusivity hinders competition among committed buyers. One of the most important arguments that buyers make in favour of exclusivity is that they want to justify the costs they justify in your company`s investigation (known as diligence).

Assuming the time has come to sell, the private equity firm must check whether there is one or more buyers who could pay a higher price and present the same or better agreement in terms of speed, safety and risk allocation. This analysis includes taking into account other potential strategic buyers and selling to another private equity firm. Michael: The more competitive the deal, the more exclusivity the buyer wants. The only exceptions we see are where the seller has enough influence for him or her to refuse the exclusivity requirement. These are all good reasons to grant exclusivity, but they cannot be seen in a vacuum. Granting exclusivity, including for compelling reasons, carries legal risks for the boards of directors of the target company because of the potential of the fiduciary customs duties of the shareholders or, in fact, the lawyers of the applicants who represent them. The private equity firm conducted an auction for a portfolio company. The highest bidder submits a letter of offer requiring the target company to provide exclusivity as a condition of its offer. For this reason, merger agreements between limited companies contain “faithful” provisions that allow the objective board to recommend that shareholders vote against a proposed merger if a better transaction is completed. This is the case regardless of whether a market survey was conducted prior to the signing.

If your banker is keen to enter exclusively with almost any buyer. These bankers are desperate to get you exclusively, in the hope that an agreement can be reached and that they can implement their fees for the transaction. Entering into exclusivity can be a big decision for our customers. What if the partner you chose is not the right one at the end? What if you waive the terms of the agreement and chip the price if you have no other options? Will it be too late to talk to others? What if there was a better offer that you missed by going exclusively? How will others see it if you go back? It can be a very emotional decision, just like a practical decision. This fear can be beneficial or detrimental to the founders, depending on how the founders approach the debate on exclusivity. If a founder suggests at the beginning of the process that he will not pass with exclusivity, buyers may choose not to participate. Exclusiveness must be addressed at the right time. Buyers are even better placed against competition if they can get a long exclusivity (30 days) because they can do their job, while the competition has to wait for the end of exclusivity. Scenario #3: the sale of a limited company in which a private equity firm holds a significant stake.