Buyers are asking for an open-ended seventy-five-day exclusivity period with automatic thirty-day extensions in their LOI. How should we structure diligence milestones and termination rights so a buyer cannot tie up our company indefinitely while fishing for financing?

Question

Tyler Smith · Accepted Answer

Signing an open-ended exclusivity clause strips you of your greatest negotiating asset: competitive market tension. The moment you sign exclusivity, you enter a proprietary negotiation where the buyer holds all the cards. If you give them seventy-five days with automatic extension rights, an uncommitted buyer or under-capitalized search fund will drag out diligence, shop for lenders, and chip away at your terms while your business remains locked off the market.

Never grant automatic extensions. Standard exclusivity in the lower middle market should run forty-five to sixty calendar days at most, and any extension must require mutual written consent based on objective, verified progress.

Establish strict, enforceable diligence milestones tied directly to the calendar. Require the buyer to complete their initial Quality of Earnings field work within thirty days. Mandate the delivery of their formal debt financing commitment letters within forty-five days, and require a full markup of the definitive purchase agreement within fifty days. Insert clear language stating that if the buyer fails to hit any milestone, exclusivity terminates immediately and automatically without penalty.

Additionally, include a fiduciary drop-dead clause. If the buyer attempts to materially re-trade the agreed headline purchase price or structural terms outlined in the LOI, your exclusivity obligations must instantly dissolve. Clear operational boundaries keep the buyer focused, shorten transaction timeframes, and protect your leadership team from endless diligence fatigue.