A no shop clause destroys so much deal leverage. I can see why the buyer would want it.
In fact a no shop clause is indistinguishable from an exclusivity agreement.
If the buyer absolutely required it I’d put a hefty non refundable price on it, probably 50% of deal value. Such a commitment has to work both ways.
It's reasonable to expect a ("reverse") break-up fee, but it is not likely to be half the deal value.
- Seller attempts to garner interest, sometimes facilitated by an investment bank.
- Buyers indicate interest informally, eventually culminating in a Letter of Intent (LOI) from each buyer indicating a price and other important factors related to a deal.
- A cricitical component of the LOI is an exclusivity period - a duration of time where the buyer is able to conduct due diligence in exclusivity. It's clearly in the best interest of the seller to minimize the duration of the exclusivity period.
- Discoveries in the exclusivity period are typically grounds for renegotiation. Vulture buyers typically crush sellers and completely renegotiate a deal in this period banking on the fact that the seller has no alternatives post exclusivity. Good buyers know their reputation is at stake if they renegotiate an LOI and will only do so if material things show up in diligence (reasonably common).
- The LOI is not an obligation to purchase. Mostly the buyer is putting their reputation on the line.
- Earnest money is extremely rare in corporate acquisitions because the buyer universe is sufficiently small such that reputation is a sufficient motivator for good behavior. That said, anything is negotiable and you can go against tradition at any point if you have enough leverage (interested buyers).
I'm also perfectly happy to let anyone know in private who it is. :) DM me on Twitter (@Shpigford) or email: josh@baremetrics.com
1. Buyer approaches seller for strategic reasons.
2. Seller tries frantically to probe interest elsewhere while early acquisition discussions continue.
3. Buyer writes a LOI, seller demands reverse break-up fee and changes, tries to stall to continue discussions in #2 without scaring away buyer.
4. Eventually some LOI gets signed.
Also in #2, does "probe interest" mean getting them to sign a LOI?
It's unlikely whatever the buyer throws over the wall first is exactly what you want to sign.
> Also in #2, does "probe interest" mean getting them to sign a LOI?
If company A approaches you, wanting to acquire you, you want to really quickly figure out if company B, company C, and company D are interested before you commit to a period of exclusivity with A.
> If company A approaches you, wanting to acquire you, you want to really quickly figure out if company B, company C, and company D are interested before you commit to a period of exclusivity with A.
Let's say that company A, B and C are interested (with A being interested the most), what would be the next step? Can you get an offer without a LOI?
Or if the buyer doesn't mention it explicitly, does it mean that they're not serious enough?
Who should mention the first amount of money first, buyer or seller?