What Does Exclusivity Mean?
An exclusivity agreement in the context of a business acquisition stipulates that the seller cannot pursue an offer from another potential buyer for a period of time subsequent to the signing of the letter of intent (LOI).
The exclusivity clause can also relate to the agreement between the seller and the business broker/investment banker whereby the seller is under exclusive engagement with that party. If a business broker ceases to represent the seller, but the company is sold within a specified period of time to a prospective buyer that the broker introduced, the exclusivity clause may be triggered and a fee tail may be owed.
Divestopedia Explains Exclusivity
Exclusivity clauses can be tricky between sellers and business brokers and often lead to problems. Sellers often claim that it is difficult to determine if the buyer was actually introduced by the business broker. Similarly, some sellers may feel that, although the buyer may have been introduced by the business broker, the actual deal was done without his/her assistance. Although this sometimes happens, this is not the real purpose of an exclusivity agreement. Its intent is to protect the broker from a seller who wishes to break the engagement once the buyer has been introduced just so the success fee does not have to be paid.