In a recent post, The 4 Types Of Exits: Secondary, I outlined many of the key considerations associated with a secondary transaction. One consideration not mentioned pertains to the process of executing the transaction.

Typically before a secondary deal can be closed the company’s existing investors will likely have a right of first refusal, which gives them an option to purchase the shares at the negotiated price. If they elect not to purchase the shares the transaction between the shareholder and the external party takes place.

By exercising a right of first refusal, an existing shareholder could cut a would-be buyer out of the exchange. However, in practice sellers often assess the appetite of other shareholders throughout the process, mitigating the risk of an unexpected outcome. To further eliminate surprises, sellers should let potential third-party buyers know about the existence of a right of first refusal early on.