The tail wagging the dog: How exclusivity agreements can hurt sellers.

Author:LaManna, Rock
Position:THE BOTTOM Line
 
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Exclusivity deals were created as a means to establish trust between parties and ensure a merger or acquisition is done efficiently. Unfortunately, Wall Street has used it as a tool to manipulate Main Street sellers in what's become a familiar and sad scene.

If you're a business owner and you're thinking ot selling your company, exclusivity is a term you should know. You're likely familiar with the concept in real estate, when you sign a contract with a realtor to sell your house: Even if a buyer contacts you directly, you're legally bound to compensate the realtor as part of the deal.

Exclusivity works the same when you're selling a business. When you sign an exclusivity deal with a business broker or another company, you're locked into an agreed upon time period. However, there are some significant differences between exclusivity regarding companies versus a broker.

TWO TYPES OF EXCLUSIVITY FOR SELLERS

There are two types of exclusivity for selling your business. The first type is between you and a broker. It typically includes a yearlong period, during which time the broker will market and sell your business. There is also a period called the "tail," which we will get to in a bit.

You can also enter into an exclusive negotiation period with another company.This is an indicator to both sides that you believe a zone of possible agreement (ZOPA) exists.The ZOPA is an acknowledgement from each party that they're committed to the deal. It's the proverbial light at the end of the tunnel.

Either type of exclusivity lessens your ability to entertain other otters from other buyers. As a seller, it may put you at a disadvantage. It you're locked into an exclusivity agreement, you can't entertain other offers.That's why the time element of any exclusivity deal is crucial.

TIME IS OF THE ESSENCE

In many ways, exclusivity is like getting engaged and setting a date tor the wedding.You have between now and the deadline date to seal the deal. That type of deadline creates a sense of urgency and really gets the ball rolling.

The longer you wait, the greater the chances that the deal could fall apart.What if you lose five big clients next month and your profits decline? What if the stock market crashes? Your buyer could get cold feet. Yon could get cold feet.

It's why the ideal state in an exclusivity date with another company is 30 days. It allows you both to focus on getting the deal done, but doesn't rule out other potential buyers who are waiting in...

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