Matching rights in a merger agreement serve as a deal protection mechanism. The presence of matching rights can provide the buyer with flexibility. If the target company receives a superior bid from a third party, matching rights allow the buyer to improve their bid for the target company. Matching rights are available during the go-shop period, also sometimes called the window-shop period.

Matching rights are commonplace in large M&A deals. Many public company mergers have (i) an initial matching period, (ii) last-look matching periods and (iii) no matching right fall-away. Matching rights are typically contained in the no-shop provision of the merger agreement, although sometimes they are drafted in the termination section.

When negotiating the matching rights in the merger agreement, the parties will be particularly focused on the number of days for the initial matching rights. An initial matching period of 3-5 days is common. The buyer will generally want the matching rights provisions to be drafted so that the target company has an obligation to partake in good faith negotiations with the buyer.

Some merger agreements will contain one-time matching right while others will have recurring matching rights. Last-look match periods allow the buyer the match each offer made by a third-party bidder. Some merger agreements may also include a matching right fall-away concept, also this is relatively uncommon.

The buyer will generally favor more expansive matching rights, while the target company will seek to negotiate narrow matching rights. In many situations, the negotiated matching rights tend to skew in favor of the buyer in an effort to secure the buyer’s agreement to the merger.

It is important to note that a matching right is a distinct concept from a right of first refusal. A matching right is a promise by the target company that if a third party makes a superior offer, the target company will present the offer to the buyer and ask the buyer if they are willing to make the same offer. On the other hand, a right of first refusal means that the target company will not grant any rights to a third party without first asking the buyer.

An example of the drafting language that may be used to describe the matching rights in a merger agreement is below:

“The Company Board may not terminate this Agreement unless (i) the Company has provided prior written notice to Parent, at least four Business Days in advance (the “Notice Period”), of the Company’s intention to take such action with respect to such Superior Proposal, which notice will specify the material terms and conditions of such Superior Proposal and (ii) prior to terminating this Agreement to enter into an Alternative Acquisition Agreement with respect to such Superior Proposal, the Company will, and will cause the Company Representatives to, during the Notice Period, negotiate with Parent in good faith to make such adjustments in the terms and conditions of this Agreement so that such an Acquisition Proposal ceases to constitute a Superior Proposal.”

 As an illustrative example from a recent public M&A deal, in the merger between Johnson & Johnson and Shockwave Medical, Inc. the initial matching period was 4 days. The merger agreement in this deal also contained last-look matching periods of 2 days. As another example, in the merger between Intercontinental Exchange, Inc. and Black Knight, Inc., the initial matching period was 5 days and the last-look matching periods were 2 days.