Adapted from “Matching Rights: A Boon for Both Sides” by Guhan Subramanian for the December 2005 issue of the Negotiation newsletter.
In negotiation, including a matching right in an agreement can be a classic win-win move.
Suppose you’re a landlord negotiating with a prospective tenant. You want to maintain the ability to sell the apartment to someone else in the future, while your prospective tenant wants a commitment to rent the apartment for as long as she wants.
The solution might be to offer the tenant a matching right – the power to match any legitimate third-party offer. In this manner the tenant gains the opportunity to avoid the disruption of a move and you preserve your flexibility.
Matching rights can also create value through tradeoffs on negotiators’ different expectations. Let’s return to the case of the investor who buys a 20% ownership stake in a private company, and assume that the investor plans to hold the stake for a long time. If the company is not as sure about his commitment, at matching right offers an ideal solution: it’s cheap for the investor to give and valuable for the company to receive.
In addition, a matching right allows the investor to signal his commitment to the company by making it more difficult for him to exit.
Of course, these gains come with a cost. As you’ll see, under certain conditions, a matching right can deter third-party bidders, a situation that can work to the grantor’s detriment.
When considering granting a matching right, an astute negotiator balances the benefit of value creation against the potential cost of scaring away high bidders.
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