Exclusivity

In a term sheet for a private placement, M&A transaction or other transaction, there is commonly a requirement for temporary exclusivity that requires one or both parties to negotiate exclusively with the other for a limited time or under certain conditions so that the investment of resources and time into due diligence and negotiations intended to finalize the agreement does not get interrupted or wasted because of an interloping offer.

For example, in an acquisition, the purchasing company will want deal exclusivity for the time it estimates that due diligence and final negotiations will take, while the seller may prefer to avoid or limit exclusivity so that it can capture more value through competitive bids. For public companies, there may be limits on the terms of exclusivity that a selling company can agree to because the selling board of directors may have a fiduciary duty to at least hear other offers in order to ensure the shareholders receive the best deal.