Without the prior written consent of the Disclosing Party, the Receiving Party shall not enter into any agreement, arrangement or understanding or any discussions with any financing source that has or would have the effect of requiring such person to provide financing (debt, equity or otherwise) on an exclusive basis in connection with a Potential Transaction, or which would directly or indirectly restrict the ability of any other person to provide any such financing.
The Receiving Party cannot enter into any agreement or discussion with a financing source that would require that financing source to exclusively provide funding related to a Potential Transaction. The Receiving Party also cannot enter any agreement that would limit the ability of other financing sources to provide funding for a Potential Transaction.In other words, without written consent from the Disclosing Party, the Receiving Party cannot lock in financing from only one source or restrict the Disclosing Party's ability to get financing from other sources for a Potential Transaction between the parties.
Exclusivity clauses related to financing have their origins in merger and acquisition deals in the 1980s.
As leveraged buyouts and hostile takeovers became more common, acquirers sought to lock in financing from select lenders before approaching targets. This prevented other competing bidders from securing funding for counter offers. By the late 1980s, exclusivity clauses were standard in confidentiality agreements during M&A negotiations. They gave acquirers time to conduct due diligence and arrange financing before a deal became public.Over time, exclusivity clauses expanded beyond acquisitions into other business contracts. As private equity and venture capital deals grew in the 1990s and 2000s, investors commonly demanded exclusivity with lending sources as a condition of funding start-ups. Exclusivity became a way for investors to control deal terms and mitigate funding risks.
Today, various forms of exclusivity remain common in confidentiality agreements across industries. The general intent is to limit counterparties' financing options during deal negotiations to benefit the party demanding exclusivity. While specific terms vary, the underlying principles of exclusivity clauses have remained relatively unchanged since their emergence in M&A deals decades ago. They continue to generate advantages for dealmakers who secure exclusive financing rights.