The Path to Exit

Episode 32 | How to Navigate Exclusivity When Selling Your Business

Host: Mike Lyon, Founder & MD, Vista Point Advisors
Guest: Jeff Bean, Managing Director, Vista Point Advisors
Release Date: September 16, 2025

Brief Overview

In this episode, Mike Lyon and Jeff Bean from Vista Point Advisors delve into one of the most critical, yet often misunderstood, aspects of selling a software or internet business: exclusivity. They demystify what exclusivity means, why buyers push so hard for it, how founders can retain leverage during these negotiations, and the potential pitfalls of mishandling this step. The conversation blends practical experience with actionable advice for founders preparing for M&A transactions, emphasizing the negotiation power and value implications entwined with exclusivity agreements.

Key Discussion Points & Insights

1. The Basics: What Is Exclusivity?

• Definition and Details

  • Exclusivity is a period where the seller agrees not to engage with other buyers, typically initiated via an IOI (Indication of Interest) or more formally in an LOI (Letter of Intent) or term sheet.
  • It is one of the few binding provisions in an LOI; most business terms, including valuation, are non-binding. ([01:03])

  “So in its simplest form, exclusivity is a period of time where, as the seller, you agree to not engage with other buyers.”
  — Jeff Bean ([01:03])

• Founders’ Common Misconception

  • Many founders see exclusivity as a routine step and focus entirely on valuation or structure, often neglecting its strategic impact.
  • It's a key area for negotiation, signaling leverage and competition levels. ([01:48])

2. Why Buyers Push for Exclusivity

• Buyers’ Stated Reasons

  • Need to “spin up expensive diligence work streams.”
  • "Market norm" and “good faith” for partnership.
  • Alleged claim: "It will close the deal faster" (which hosts dispute). ([02:46])

  “They also sometimes will make the case, and we kind of laugh at this sometimes here internally, that it’ll be quicker to get a deal done if they just get exclusivity, which in some respects is actually the exact opposite of that.”
  — Jeff Bean ([02:46])

• Buyers’ True Motivations

  • Eliminates competition, providing buyers with a free option on the business and leverage to renegotiate.
  • Enables buyers—especially PE funds—to analyze multiple targets in parallel and drop or "retrading" deals as convenient.
  • Sometimes used to buy time, such as organizing financing. ([04:34])

  “Nothing happens in exclusivity that’s really good for the seller other than just the deal closing. Right. Valuation doesn’t get any higher and obviously you have no more leverage as a seller to push on valuation at that point.”
  — Jeff Bean ([04:34])

3. Risks of Granting Exclusivity

• Loss of Leverage

  • Granting lengthy exclusivity can broadcast to buyers that no other parties are in play, reducing competitive tension.
  • The “tiring out” strategy: buyers may deliberately drag out diligence, then cut price late in the game. ([05:43])

  “The more nefarious buyers out there will try and tire you out and then basically retrade you. It’s kind of a strategy.”
  — Mike Lyon ([05:43])

• Market Perception

  • Long exclusivity periods signal a weak process and reduce seller negotiating power both with the current and any future buyers.

4. When to Give Exclusivity—and How Much

• Appropriate Timing

  • Never at IOI stage, only post-diligence and at the LOI or term sheet stage.
  • All major “business/commercial diligence” (market understanding, product, positioning) should be completed before granting exclusivity. ([06:52])

  “We would never grant it at that stage. We’re only granting exclusivity, really at the LOI or term sheet stage… and ideally that’s on the path to getting the deal closed and the commercial diligence is done.”
  — Jeff Bean ([06:52])

• Best Practices for Diligence

  • Preferably, accounting and technology diligence should be done before exclusivity.
  • Legal diligence is the sticking point, as buyers won’t usually incur significant legal expenses without exclusivity.

• Short Windows Preserve Optionality

  • Brief exclusivity periods (as low as 2–7 days) keep runner-up buyers engaged and sustain competition.
  • Sellers have maximum leverage before entering exclusivity. ([08:53])

  “If we give a buyer seven days of exclusivity... and something happens, we still have our optionality, right?... That is really powerful.”
  — Jeff Bean ([07:41])

5. Tools to Manage Exclusivity

• Negotiation Tactics

  • Limit exclusivity periods, insist on clear milestones and deadlines.
  • “Partial exclusivity”: allow the buyer management access but let bankers keep alternatives warm in the background.
  • Aggressive deadlines for key deliverables (e.g., draft purchase agreement) can prevent slowdowns. ([11:16])
  • Periodic confirmations from buyers that the deal remains on agreed terms.

  “We’ve had some scenarios where we granted partial exclusivity... a pretty reasonable way of kind of protecting the seller, but also giving the buyer some comfort.”
  — Jeff Bean ([11:55])

• Signaling Effect

  • Refusing exclusivity or offering brief periods signals competitive tension and can lead to better pricing/terms.
  • Long exclusivity can “neuter” negotiation and signals lack of alternatives.

6. Addressing Banker Conflicts and Market Norms

• Red Flags with Sell-Side Advisors

  • Some “conflicted” bankers (focused on buy-side clients) will recommend early or lengthy exclusivity, citing deal speed or buyer friendliness—often not in seller’s best interest. ([14:36])

  “If you have a banker or someone’s recommending to... just get it done—that’s just flat out wrong. And I think there’s maybe some motivations behind that that could be influencing it.”
  — Jeff Bean ([14:36])

• Boilerplate Timelines are Suspect

  • Any advisor who always accepts standard windows (30, 45, 60 days) isn’t fighting for the seller’s best interest.

• Valuation Tied Directly to Exclusivity

  • There is a strong correlation between days of exclusivity and final pricing.

  "If I saw a transaction get done and the only thing I knew was the number of days of exclusivity that was granted on that deal, I would have a high degree of ability to estimate how it priced—directly correlated."
  — Jeff Bean & Mike Lyon ([16:12])

Notable Quotes & Memorable Moments

• On the negotiation within a negotiation:

  “This discussion around exclusivity... is actually really the negotiation behind the negotiation.”
  — Mike Lyon ([01:48])

• On buyers’ motivation:

  “It gives them an option on the business and it eliminates all competition.”
  — Jeff Bean ([04:34])

• Caution for founders:

  “We see a lot of sellers put themselves in a bad position because they got really excited about the IOI or the LOI and gave no thought to how much diligence had been done. And then there’s a big change in terms and you’re stuck with, do I just eat it and do this deal or do I restart my process?”
  — Mike Lyon ([09:52])

• On market signals:

  “There is a strong amount of signaling that takes place in this discussion that’s not often transparent to the founders because... the buyers do a really good job of presenting this as a given.”
  — Mike Lyon ([13:26])

• On correlation with price:

  “We actually have a slide in our pitch deck... we'll show these deals that happened, the valuations and how correlated it is to the days of exclusivity. Like they were directly related if you're running the process the right way and taking advantage of your leverage.”
  — Mike Lyon ([16:23])

Timestamps for Important Segments

• 00:45 — What is exclusivity?
• 02:46 — Why buyers push for exclusivity (stated vs. real reasons)
• 04:34 — The implications for valuation, options, and buyer tactics
• 06:52 — When and how to grant exclusivity: stages and diligence
• 08:53 — Non-negotiable diligence before exclusivity; pitfalls of early granting
• 11:16 — How to manage exclusivity periods and tools for founders
• 13:02 — Signaling and differences among buyer types
• 14:36 — Banker conflicts and how to spot them
• 16:12 — Relationship between exclusivity and valuation

Summary Table: Best Practices for Managing Exclusivity

| Step | Best Practice | Avoid | |---------------------|----------------------------------------------------|-----------------------------| | IOI Stage | Never grant exclusivity | Agreeing to buyer demands | | Diligence | Complete market, accounting, tech diligence first | Skipping diligence steps | | Exclusivity Period | Keep as short as possible (2–7 days if feasible) | 30–60+ days standard window | | Milestones | Set clear deliverables/deadlines | Vague or open-ended terms | | Communication | Partial exclusivity to keep options open | Locking out all alternatives| | Banker Selection | Focus on unconflicted sell-side advice | Buy-side-focused bankers |

Final Takeaways

• Exclusivity is the most critical point of negotiation after valuation.
• Leverage, pricing, and deal certainty hinge on how you manage this window.
• Founders need experienced, unconflicted advisors to avoid mistakes that cost millions.