Exclusivity Period/No Look Period during Due Diligence of an Acquisition

In the acquisition process after the “Letter of Intent” has been agreed to and signed by all parties, there is a “no look” period in which the potential buyer has exclusivity for a period of time prior to the date of purchase, usually 45 to 75 days, depending on the size of the deal.

The biggest risk to the seller is that the buyer is not moving things along in good faith.  It may be clear the deal will not likely be consumated, but the seller is still bound to the exclusivity period and has to wait.  In the meantime; the business is not getting sold and the seller cannot explore the market for fresh interested buyers until the end of that period.

One of the best ways to protect the seller in this instance is to set deadlines or milestones within the exclusivity period. Example; the buyer must complete the due diligence by a certain date or present a purchase agreement by a set date, so the seller has the right to get out of the exclusivity period if the deal doesn’t stay on track.

If the buyer is having difficulty where the deal is taking longer than anticipated and the exclusivity period is running out, but the buyer is still working diligently and asks for an extension, the seller has an opportunity to use some leverage. For instance; the seller may trade items in the purchase agreement to get things moving faster or make a financial request or whatever the creative seller thinks of because the leverage has shifted. The buyers will want the extension to get the deal done.

Lesson learned here is that there may be a lot of nuances in an LOI and it’s important to get your attorney involved early to make sure the exclusivity period is drafted well and all potential issues have been thought through.