When the mergers-and-acquisitions boom began in 1993, many deals simply required the seller to let the buyer know if a “superior proposal” came along. By the late 1990s, buyers were demanding – and receiving – more than this: an exclusive negotiating period of several days, during which they could decide to match or improve upon another bidder’s offer. Guhan Subramanian’s investigation revealed that matching rights were included in approximately 20% of M&A deals before 1999 – and in 80% of deals since then. Today, matching rights are virtually ubiquitous in large M&A deals and are being rapidly incorporated into deals at all levels in many industries.
While the details vary depending on the negotiation, most matching rights share an underlying structure. Specifically, the grantor gives the rights holder the right to buy an asset on the same terms that the grantor would receive from any other bona fide, prospective bidder, otherwise known as a third party.
In the case of the equity-infusion vignette, suppose that two years have passed since the company (in this case, the right holder) and the investor (the grantor) signed their deal. The investor now wants to liquidate his investment. One potential buyer offers to purchase the 20% interest for $3.4 million. The investor is now required to ask the company, which holds the matching right, if it wants to match the offer. This contractual obligation has important consequences that depend in large part upon the role you play in a negotiation.
Adapted from “Matching Rights: A Boon for Both Sides” by Guhan Subramanian for the December 2005 Negotiation newsletter.
See also: 5 Win-Win Negotiation Strategies
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