Due Diligence Exclusivity Agreement

Termination: both parties should give themselves an “out” if the transaction does not meet expectations. As a buyer, you may discover problems that affect the sale price or the company`s intentions. The seller could negotiate terms ending the exclusivity period if the buyer does not make progress in closing the transaction. As a general rule, the seller grants exclusivity taking into account the time and burden of the buyer related to the transaction. However, if the exclusivity period is particularly long, the seller may collect an exclusivity fee. If the buyer never signs a contract, the seller retains the exclusivity fee. When the buyer signs a contract, the exclusivity fee goes towards the purchase price of the business. 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.

The goal for the buyer is to position himself in a better position than all potential competitors. They will want the seller to ensure that his employees, agents, etc., comply with all the terms of the contract and order them to do so. The buyer will also want to ensure that the seller engages positively in the investigation process and provides his lawyers with all the necessary information. The buyer must specify exactly what the seller should and should not do. Does exclusivity mean that the agreement is reached? Unfortunately, no. Michael: The biggest risk for sellers is that the buyer does not move things forward in good faith. It may be clear that the agreement will probably not be concluded, but the seller is still stuck with exclusivity and has to wait for the deadline. The seller does not get the agreement, and he cannot renew the purchases until the end of this period. Under these conditions, any buyer who cares about his reputation will usually leave the seller out of exclusivity, but this does not always happen. Before the seller signs up for an exclusive offer, make sure that all buyers have been fully explored and that the seller has the best offer at hand. The balance of power changes dramatically as soon as the seller grants exclusivity to a single buyer, and it is very important to be sure that a deal can be made with the selected buyer. The exclusivity provision sometimes requires the purchaser to transfer the previously agreed non-refundable deposit (also known as the “exclusivity tax”) to a trust account where it is held on the seller`s order.

Depending on whether a deal is signed or not by the buyer, the money held in that trust account is either withheld by the seller or used at the purchase price of the destination for the benefit of the buyer. What happens next is a period of due diligence and the negotiation of legal agreements that transform the agreed offer into a concluded agreement. 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.