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This is a form of Exclusivity Agreement in which a target company or seller agrees to negotiate exclusively with a particular buyer for a given period of time. Parties most commonly use these agreements in the acquisition context. However, parties may also use them when negotiating an investment, joint venture, or merger of equals. Parties should use this agreement in the context of an acquisition.
As is common for exclusivity agreements, this agreement is a letter from the potential buyer to the target company. However, a more formal agreement (with a preamble, recitals, numbered sections, etc.) can also be used.
The Negotiating Dynamic
This Exclusivity Agreement is a stand-alone agreement in which the parties only address the subject of exclusivity. At an early stage of negotiations, this agreement might be the only document signed by the parties. Alternatively, parties might sign an exclusivity agreement simultaneously with a term sheet or other letter of intent (LOI). These set out a preliminary understanding of the deal terms. Similarly, the parties can negotiate exclusivity as a separate provision within a broader confidentiality agreement or term sheet.
Exclusivity is frequently only negotiated in, or simultaneously with, an LOI if the target has chosen to preserve its leverage and not grant exclusivity to the buyer until it has negotiated the material terms of the transaction. For its part, the buyer will often make its execution of the LOI conditioned on the target agreeing to an exclusivity period. Similarly, in an auction context, the buyer may include an exclusivity provision in a bid letter that it submits to the target that sets out various other terms and conditions relating to its bid.
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