Matching rights
M&A / Merger ModelThe original buyer's contractual right to revise its offer to match a competing proposal before the board may terminate.
Also written: right to match, last look
If a superior proposal emerges, the target normally has to disclose its terms to the original buyer and wait a short period during which that buyer may match or beat them. Only then can the board terminate and switch.
The economics of that are worse for a rival than the drafting suggests. The rival pays for its own advisers, absorbs a data room on a compressed timetable, forms a view and puts a number on the table. The incumbent, which finished its diligence months earlier, then decides whether to take that number. The rival has bought the information and handed the option to somebody else.
The selection effect is the part worth saying out loud. A rival wins only where the incumbent declines to match, and the incumbent declines only where the price has passed its own view of value. So a rival's victories are concentrated in the cases where it has bid above the number the best informed party in the room would pay, which is the winner's curse reached through a contract rather than through an auction.
That is why a fee step down inside a go shop window does less than it appears to. The step down lowers the hurdle by its own size. The matching right does not step down at all.
Worked example
A rival bids 1,016 against a signed deal at 1,000 with a fee of 15, clearing the hurdle by one.
The incumbent exercises its right to match at 1,016 and the board cannot terminate. The rival receives nothing and has still paid its advisers.
The rival would only have won had the incumbent walked away, which it does only above its own view of value.