Exclusivity—share and asset purchases
Exclusivity—share and asset purchases

The following Corporate guidance note provides comprehensive and up to date legal information covering:

  • Exclusivity—share and asset purchases
  • Advantages for the buyer of securing an exclusivity commitment from the seller
  • Why the seller may resist committing to exclusivity
  • Provisions to include in an exclusivity letter

This Practice Note provides an overview of exclusivity provisions in the context of the acquisition of shares in a company or the acquisition of a business and its assets (the target). Exclusivity provisions may be contained in a separate letter (from the buyer and addressed to the seller) or they may be included in heads of terms (also called an offer letter, letter of intent or memorandum of understanding) or, less frequently, in a confidentiality agreement (if one or both of these documents are entered into). Whatever form they take, exclusivity provisions will be entered into at the outset of the transaction.

The purpose of exclusivity provisions is to prevent the seller from negotiating with, or soliciting any competing offers from, any other parties with respect to the sale of the target or a substantial part of its business and assets. They grant the buyer a period of exclusivity within which to negotiate the terms of, and conclude, the transaction. In order to be enforceable, the provisions must be drafted as a 'lock-out' (or 'shut out') arrangement (ie preventing third parties from entering into negotiations) rather a 'lock-in' arrangement which commits the buyer to concluding the transaction. Exclusivity will be attractive to a buyer who is nervous about incurring costs (mainly on due diligence) where there is a risk that the proposed