What is an exclusivity period in M&A and how does it differ from a term sheet no-shop?

Full Explanation

In M&A, an LOI (letter of intent) typically includes 30-90 day exclusivity, preventing the target from accepting other offers or even exploring alternatives. This gives the buyer time to conduct due diligence (data room, site visits, financial audits, legal review) knowing the target is off-market. Exclusivity is more restrictive in M&A than VC fundraising because the buyer is making a specific, often material investment in due diligence. M&A exclusivity often includes a 'break-up fee' (2-5% of deal value) if the seller violates it by accepting an alternative offer. For sellers, exclusivity is risky: if the LOI buyer fails diligence or walks away, the market window has closed and momentum has been lost. Professional sellers negotiate tight exclusivity (30 days max) and try to include a 'go-shop' clause allowing them to accept unsolicited offers from other parties who appear simultaneously. VC no-shop differs because it's shorter (30-45 days) and there's no break-up fee — the penalty is just losing the investor's term sheet. For startups, exclusivity in M&A is often negotiated and can sometimes be avoided by running multiple processes simultaneously.

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