Exclusivity
An agreement where the seller commits not to negotiate with other potential buyers for a specified period.
Full Definition
Exclusivity (also called a "lock-out" agreement) is a contractual commitment by the seller not to solicit, encourage, or negotiate with other potential buyers during a specified period.
Purpose of exclusivity:
- Gives buyer confidence to invest in due diligence
- Protects buyer's transaction costs
- Signals seller's commitment to the deal
- Creates momentum toward completion
Typical exclusivity terms:
- Duration: 4-12 weeks (renewable)
- Scope: No solicitation, no negotiation, no provision of information
- Carve-outs: Existing discussions, unsolicited approaches
- Termination: Breach, failure to progress, long stop date
Buyer leverage: Buyers often seek exclusivity after submitting a bid, before incurring significant adviser costs. The grant of exclusivity is a negotiating point itself.
Seller considerations:
- Lost competitive tension
- Time off market if deal fails
- Need to maintain backup options
- May request exclusivity fee or break fee protection
In UK practice, exclusivity is commonly granted at Heads of Terms stage, with specific milestones to maintain exclusivity through to completion.
Related Terms
Heads of Terms
A preliminary document outlining the key terms of a proposed transaction before detailed legal agreements are drafted.
Break Fee
A penalty payment agreed in advance, payable if one party withdraws from or fails to complete a transaction.
Letter of Intent (LOI)
A document expressing serious interest in acquiring a business and outlining proposed transaction terms.