Earlier this year, Brookfield, a US private equity firm, ran out of exclusivity in its investigation and attempt to acquire Origin Energy.
An exclusivity period is usually agreed upon between the vendor and the buyer once the headline indicative terms are agreed. These terms are typically set subject to due diligence and contract. Whilst these terms are rarely binding (although there are exceptions), they do set a detailed framework for what is going to happen as parties move toward a completed deal.
This agreed timetable and process seeks to keep everyone honest and moving forward in good faith. The vendor must provide important information and answer questions about the business, and the buyer must perform their due diligence to satisfy themselves that the business is as represented. If the business is as described, the buyer will generally stick to the agreed terms and seek completion.
The exclusivity period, one of the few things that is binding at this stage, provides a period when the vendors agree not to engage further with the market pending the completion of the deal on the indicatively agreed terms.
This exclusivity period is usually demanded by a buyer, and that is fair enough; they are about to expend considerable time, effort and money in conducting detailed due diligence and don’t want to be undermined by a counterbid at the death.
The vendor relies on this period (often 12 weeks) to keep the buyer honest and on track according to any agreed timetable. The vendor has the comfort that if the buyer misses the timetable or seeks to negotiate the terms, then once the period has elapsed, they are free to re-engage with the market. Any extension to the exclusivity period must be mutually agreed upon.
We always develop a detailed heads of agreement that governs the process from initial agreement to completion. This is signed by both parties. While it’s predominantly non-binding, there are binding elements related to confidentiality and exclusivity.
It’s essential to agree on a set period of exclusivity at this stage; the old adage is true: buy slow and sell fast! The buyer will be prone to delay, whereas the vendor should be seeking to get the deal complete on time.
Read our series How to sell a business here.
Stay safe and good luck.
- No deal yet as Brookfield’s exclusive run at Origin expires, AFR, Colin Packham, Jan 16 2023 https://www.afr.com/companies/energy/no-deal-yet-as-brookfield-s-exclusive-run-at-origin-expires-20230116-p5ccvj