What Is the Ideal Exclusivity Period in M&A Transactions?
- Dr Allen Nazeri DDS MBA
- Jun 8
- 5 min read
In the world of mergers and acquisitions, timing is everything—and one of the most critical (and often misunderstood) components is the Exclusivity Period. This is the window during which the seller agrees not to negotiate with or entertain offers from other potential buyers, in exchange for the buyer's commitment to proceed diligently with due diligence and closing preparations.
While buyers often prefer a long Exclusivity Period—typically 90 to 120 days—it’s important to understand that such timelines can be a double-edged sword. From the seller’s standpoint, a long exclusivity can tie up the business, reduce competitive pressure, and potentially lead to deal fatigue if the buyer fails to act decisively.
Having managed over $750 million in annual M&A mandates, I’ve seen firsthand how exclusivity terms can accelerate or derail a transaction. So, what is the ideal duration? For most lower to middle-market healthcare and service companies, the sweet spot for an Exclusivity Period is 45 to 90 days, depending on the complexity of the transaction.
Let’s unpack why that is—and how both sellers and buyers can protect their interests with a well-structured exclusivity agreement.
Why Do Buyers Push for Long Exclusivity Periods?
Buyers, especially private equity firms and strategic acquirers, often push for Exclusivity Periods of 90 to 120 days. Their rationale is simple: they want breathing room. Time to conduct deep due diligence, secure financing if needed, engage legal counsel, and structure the deal in a way that minimizes risk on their end.
From a business standpoint, this makes sense. Buying a company—especially in the healthcare sector or a regulated market—is not a quick process. But while long timelines may benefit buyers, they come at a real cost to the seller.
The Risks of Overly Long Exclusivity for Sellers
Sellers often don’t realize that agreeing to an excessively long Exclusivity Period effectively removes their business from the market. This can halt momentum, delay exit timelines, and reduce leverage if the deal falls apart and the seller has to start over with other suitors. Worse yet, most exclusivity arrangements don’t come with deposits or financial commitments from the buyer, meaning sellers bear all the opportunity cost.
In my experience, sophisticated buyers who are genuinely interested and well-prepared do not need more than 60 days for due diligence, followed by an additional 30 days for finalizing legal documents and closing the deal. These buyers already have teams of accountants, attorneys, and transaction advisors in place. They’re not learning on the job—they’re executing.
Ideal Timeline for the Exclusivity Period: 45–90 Days
For most lower to middle-market transactions (businesses with enterprise value between $5M–$75M), a 45- to 90-day Exclusivity Period is sufficient. Here's how the timeline can be optimized:
Week 1–2: Initial Milestones
Proof of Funds within 5 days of the signed Letter of Intent (LOI).
Engagement Letter with Accounting/QoE (Quality of Earnings) firm within 10 days.
Week 3–6: Deep Due Diligence
Secure access to the data room and begin operational, financial, legal, and compliance reviews.
Week 6–9: Legal Structuring
First draft of legal documents (Asset Purchase Agreement or Stock Purchase Agreement) due by Day 45.
Week 10–13: Closing
Final revisions, consents, approvals, and closing coordination. If everything progresses according to plan, the deal should close within 75–90 days.
This disciplined approach keeps the buyer focused and the seller protected.
Milestone-Based Exclusivity: A Smart Seller Strategy
One of the smartest ways to structure the Exclusivity Period is by tying it to clear milestones. This helps ensure the buyer is serious and actively moving the deal forward. These checkpoints also give the seller the right to revisit the agreement if progress stalls.
Here’s a recommended milestone-based structure:
Proof of Funds: Within 5 business days of LOI.
Signed Engagement Letter with Accounting or QoE Firm: Within 10 business days.
Kickoff Diligence Call with Seller and Buyer's Advisors: By Day 15.
Legal First Draft (APA/SPA): By Day 45.
Anticipated Closing: By Day 75–90.
If any of these milestones are missed without reasonable explanation, the seller should have the option to terminate exclusivity early or convert it to non-exclusive negotiation.
Should Exclusivity Be Bilateral?
This is a commonly overlooked question—should Exclusivity Periods be bilateral?
Most LOIs only bind the seller, preventing them from negotiating with other buyers. But it’s also reasonable for sellers to expect buyers to reciprocate. If the buyer is genuinely interested, they shouldn’t be distracted evaluating multiple other deals during exclusivity.
That said, bilateral exclusivity should be flexible:
For Individual Buyers or Small Family Offices: Request full bilateral exclusivity—if they’re investing in your deal, they should be focused on it.
For Large PE Funds or Strategic Acquirers: Consider a limited bilateral clause—e.g., buyer cannot pursue similar opportunities within the same sector (e.g., urology groups, dental labs, hospitalist companies).
This protects the seller’s time and gives buyers some room for portfolio activity that may not directly conflict.
Tips for Negotiating the Right Exclusivity Period
Here are a few final takeaways for both sellers and buyers navigating the Exclusivity Period:
For Sellers:
Don’t agree to a long exclusivity unless the buyer has a proven track record and clear milestones.
Ask for milestone clauses and retain the right to terminate if progress stalls.
Consider bilateral exclusivity depending on the buyer's size and scope.
For Buyers:
Don’t push for more than 90 days unless the deal is unusually complex (e.g., international, highly regulated).
Be prepared to move fast and show proof of capital and advisory engagement.
Realize that credibility is earned by keeping timelines, not by locking sellers out of the market.
Conclusion: Set the Clock with Intention
The Exclusivity Period should not be treated as boilerplate. It’s a strategic part of the negotiation, and how it’s structured says a lot about both sides’ seriousness and professionalism. Whether you're a seller trying to maintain leverage or a buyer looking to secure the deal, your interests are best served when exclusivity is fair, time-bound, and milestone-driven.
In my role managing hundreds of M&A transactions each year, I’ve seen that exclusivity doesn't need to be long to be effective—it just needs to be clear, mutual, and aligned with realistic timelines. If you structure it right, everyone wins.
Dr. Allen Nazeri, aka "Dr. Allen," boasts over 30 years of global experience as a healthcare entrepreneur. He is the Managing Director at American Healthcare Capital and Managing Partner at PRIME exits. Dr. Allen provides strategic growth consulting to leadership teams of both privately held and publicly listed companies, ensuring their preparedness for successful exits.
He holds a Dental Degree from Creighton University and an MBA in M&A and Investment Banking from the University of Bedfordshire. Dr. Allen is the author of "Value Engineering: Strategies to 10X the Value of Your Clinic and Dominate the Market!" and the brand new book "Selling Your Healthcare Company at a Premium". Dr. Allen offers a free valuation to business owners ready for a partial or complete exit strategy. Dr. Allen collaborates with strategic buyers, private equity firms, and institutional investors, taking direct accountability for the annual successful sell-side representation of nearly $750M in enterprise value.
To have a confidential discussion about your company and receive a free valuation, please email Allen@ahcteam.com or Allen@ahcpexits.com
You can now communicate with Dr. Allen's clone https://www.delphi.ai/drallen
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