No Need to Fear the No-Shop Period
If you are a buyer, you love them. If you are a seller, they might make you nervous. In our experience, understanding how “no-shop” periods work is a critical aspect of understanding the merger and acquisition (M&A) process.
What is an exclusivity period?
During this period, the seller agrees to deal exclusively with only one potential buyer. Exclusivity periods are also called “no-shop” periods or “no solicitation” periods because they ask the seller to agree to exactly that – not shop the business to other buyers and not accept solicitations from other buyers for a specific period.
Exclusivity periods exist largely as a way to give the buyer leverage by preventing the seller from looking for another more competitive offer. It provides the buyer with some time to focus on the deal without competition, solicited or unsolicited.
How long will it be?
As one might imagine, buyers would like as much time as possible to work on a deal without competition, whereas sellers would prefer to gather as many competitive offers as possible. Generally speaking, 45-75 days is a common time frame, often beginning when a letter of intent is accepted.
How can a seller protect themselves during an exclusivity period?
While exclusivity periods certainly need to be handled strategically, sellers do not need to panic if they follow two guidelines:
1. Ensure you are comfortable with the letter of intent. A strong letter of intent should give both sides a good indication of what a potential deal will look like. If the letter is unacceptable, the seller should shop around. If the letter is on the right track and a deal seems likely, then going exclusive to focus on the terms makes more sense.
2. Insist on milestones during the exclusivity period. The last thing either party should want is to be stuck in an exclusivity agreement when it looks like a deal is not going to move forward. Setting milestones can be a great way to ensure that progress continues. A milestone might be requiring due diligence to be completed by a certain date or setting a due date for each draft of the purchase agreement. If a milestone is missed, then the seller has the right to shop around.
Symmetrical helps Middle Market companies to strategically assess their needs and prepare for big transitions. If you are considering buying or selling a business, contact us for a confidential discussion about how we can help.