Anonymised, illustrative composite. A sponsor let an unsolicited approach set the pace of its exit — and signed away the one thing a seller actually controls before finding out what it was worth.
At a glance
An independent sponsor had owned a specialty distribution platform for four years, financed two bolt-ons, and was working toward an exit inside its fund's target hold period. A regional strategic acquirer — a company the platform sold to as a customer — called the CEO directly with an offer to talk. No banker was retained; the approach felt like a shortcut past the cost and disruption of a formal sale process, and the sponsor's deal partner agreed it was worth exploring.
Exploring turned into negotiating turned into signing a letter of intent, all inside three weeks, with only one counterparty in the room. The LOI carried an exclusivity period — standard practice once a buyer is committing real diligence spend, and on the terms this article describes, typically thirty to sixty days for a smaller deal and sixty to ninety for a larger or more complex one. The sponsor's counsel flagged that once signed, the seller could not “negotiate with other buyers for a fixed period,” and that breaking exclusivity exposes the seller to damages. The sponsor accepted seventy-five days on the reasoning that a single serious buyer, already familiar with the business, was worth locking in.
The LOI priced the platform at $34.3M enterprise value, roughly 3.5× the trailing EBITDA. Forty-one days into the exclusivity window, the buyer's diligence team came back with a $2.9M reduction, attributed to customer-concentration risk the sponsor's own materials had already disclosed. With fifty-nine days of the window still running and no competing bidder to compare terms against, the sponsor's partner accepted the re-trade rather than restart a process from a standing start. Eleven days before the extended close date, the buyer's team reduced again, this time $1.1M, citing a working-capital adjustment methodology it had not raised before. By signing, the deal had moved from $34.3M to $30.3M — an 11.7% reduction, entirely absorbed inside an exclusivity window the sponsor had granted before testing what any other buyer would pay.
Nothing here was a legal defect — that is the point. An LOI's exclusivity clause is, as this source puts it, “almost always binding”, one of the few LOI provisions with real enforceable teeth even though most of an LOI is deliberately non-binding. That is exactly why it works as a re-trade lever: the seller who signs it has traded away the credible threat that makes a first offer hold. A break fee running the other way — payable by a buyer who walks or re-trades without a defined, disclosed basis — is the standard counterweight, and this sponsor's LOI had none. Break fees tend to appear precisely where a seller has granted meaningful exclusivity and wants protection if the buyer backs out — which describes this deal exactly, and is exactly the clause the LOI omitted.
The deal closed at $30.3M, and the sponsor's post-mortem was blunt: the process, not the price ceiling, was the mistake. Canada's private equity market was not thin at the time — 252 PE deals closed for $12.7B in the first half of 2026 alone, a real and current base rate for how many capitalised, active buyers exist for a platform this size. Running even a short, targeted process to seven or eight logical strategics and sponsors — instead of one — would have cost weeks, not months, and would have meant the second and third re-trades faced a credible we'll take it to the next buyer instead of a sponsor with nowhere else to go. For related process failure modes, see how a minority grievance stalled a different sale entirely.
The signal to watch for is a seller granting exclusivity before it has any evidence of what the market will pay. Exclusivity is a normal, often necessary cost of getting a serious buyer to spend real diligence money — the failure here was granting it to the first buyer in the room rather than the best of several. A short informal soft-market check, even without a full banker-run auction, prices the option a sponsor gives up every time it signs an exclusivity clause.
The sponsor's next portfolio-company sale ran differently on three points, each traceable to this deal. First, no LOI was signed with fewer than three parties having indicated interest, even where one approach came in first and felt further along. Second, every LOI thereafter paired the buyer's exclusivity request with a reciprocal break fee, sized to the diligence costs the seller was itself incurring during the window, so a re-trade without new information had a real price attached to it rather than a free option. Third, the fund began treating the first thirty days of any approach as information-gathering only — enough time to sound out two or three comparable buyers quietly, without a banker-run process, before committing to exclusivity with anyone. None of this required a formal auction; it required not signing away the ability to compare offers before knowing what they were.
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