May 27, 2010
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Adapted from “Matching Rights: A Boon to Both Sides,” by Guhan Subramanian (professor, Harvard Business School and Harvard Law School), first published in the Negotiationnewsletter.
As dealmakers look for more sophisticated ways to reduce risks and increase returns, a matching right—a contractual guarantee that one side can match any offer that the other side later receives—has become a common and useful tool in negotiations.
As an example, imagine that a procurement officer reaches a five-year, fixed-price agreement with a longtime supplier but is concerned that market fluctuations might make the agreement less attractive to her company in the future. The officer proposes an exit for her company, with appropriate notice, if an alternative supplier can offer a better price. The supplier agrees but demands the right to match any competitor’s offer and keep the business. The parties reach agreement and sign the five-year deal.
As this story shows, matching rights (sometimes known as rights of first refusal or rights of first offer) can create enormous value. While the details vary depending on the negotiation, most matching rights share an underlying structure. Specifically, the grantor gives the right 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 the third party.
See more at: http://www.pon.harvard.edu/daily/business-negotiations/know-your-rights/
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