Exclusivity is an undertaking that for an agreed period you will not talk to anyone else about selling. A buyer asks for it because from that point on they start spending their own money on lawyers and auditors, and they do not want to fund an auction someone else wins. For you it is the moment competition disappears, so price and the main terms have to be settled before you sign, not after.
What exclusivity actually is
Exclusivity is a clause in the letter of intent or the term sheet in which you agree that for a set number of weeks you will not hold talks with other buyers, will not accept offers and will not show the company to anyone but that one party.
Most of a letter of intent is not legally binding. Exclusivity is. It is one of the three or four clauses that survive the declaratory rest of the document, alongside confidentiality, the split of costs and governing law.
Why a buyer asks for it
From the moment the letter of intent is signed, the buyer stops reading presentations and starts paying. A transaction lawyer, a tax adviser, sometimes a technical or environmental auditor: the bill for due diligence on a mid-sized company runs into tens of thousands of euros, and higher on larger processes.
Nobody spends that knowing three other buyers are working through the same data room at the same time while the seller waits to see who bids highest. In that sense the request is fair. The problem starts when it is granted too early.
What you give up at signature
You give up the only leverage you have in a negotiation: an alternative. As long as a second interested party is on the short list, every attempt to move the terms against you carries a cost. Once exclusivity is signed, that cost disappears.
This is why price chipping after due diligence happens almost exclusively during the exclusivity period. The buyer knows that going back to the previous round will take you months, and that your people already know the company is for sale.
What to look at in the clause itself
- Duration. Counted in weeks, with a hard end date and no automatic rollover. Any extension should require your written consent.
- Scope. The undertaking covers talks about selling this company, not every business conversation. Drafted too broadly, it can capture an ordinary commercial agreement or an investor coming into a subsidiary.
- What ends it early. The buyer walking away, a material change to the offer, no progress by an agreed date. If the buyer moves off the price, exclusivity should lapse automatically.
- Obligations on the other side. Exclusivity for nothing is a bad trade. In return you should get a due diligence timetable, the document list up front, confirmation of where the funding comes from and a named decision maker on the buyer’s side.
- Costs and the break fee. Rarely used on mid-sized Polish transactions, but it is worth knowing who pays for what if the process falls apart.
How long it should run
For a company with a simple structure and documents in order, six to eight weeks is enough for full due diligence. For a group of companies, real estate or unresolved tax history, the realistic figure is ten to twelve weeks.
A longer period is not wrong in itself if the scope of the review justifies it. What is wrong is open-ended exclusivity, or exclusivity that rolls over because the buyer ran out of time. The process as a whole, and what happens before this stage, is set out in our piece on how long it takes to sell a company.
What has to be settled before you sign
The price, or the mechanism that sets it. The structure of the transaction. What is in and what stays out. How debt and working capital are treated. Payment terms, including how much is deferred. The assumptions about your own role after completion.
Every one of those points, left for later, comes back during exclusivity, and comes back on the buyer’s terms. The best protection is not an elaborate exclusivity clause but a prepared company: risks cleared and documents ready before anyone asks for them.
See also
- Exclusivity, LOI and break fee in the glossary
- Letter of intent: what actually binds and what does not
- Price chipping, or cutting the price after due diligence
- Frequently asked questions about selling a company
About the author
Łukasz Brzyski runs Brzyski & Partners Management Consulting. He advises on the sale and purchase of companies valued between PLN 10 and 50 million, and sold two companies he co-founded before he started advising others. More about the author