What Does Exclusivity Period Mean?
An exclusivity period is a length of time (usually 30 to 60 days) during which a seller is prohibited from carrying out or furthering activities that relate to the sale of a firm with parties other than the prospective buyer with whom they have signed a letter of intent. The scope and duration of the exclusivity period varies (as per the decisions of the parties involved), but the specifications and regulations are written in each specific letter of intent.
Divestopedia Explains Exclusivity Period
This period is necessary for the buyers because they need time to complete the formalities of making a quality purchase. Things like drafting the purchase documents, debt-financing documents, etc., can prove to be time-consuming. With exclusivity, buyers can complete this work without feeling rushed. However, because a letter of intent does not bind the buyer to close the deal, the seller will often try to restrict this period. If it falls through, he or she will be forced to start the process again. Although this process can be an annoyance, the buyer and seller agree to the period because the costs related to closing a transaction are too high not to justify exclusion.