What Is a Right of First Offer?
A right of first offer (ROFO) — also called a right of first negotiation or right of first bid — is a contractual provision that requires the asset owner to offer the asset to the ROFO holder before soliciting or accepting offers from third parties. Unlike a right of first refusal (ROFR), which triggers after a third-party offer exists, a ROFO gives the holder the first opportunity to negotiate and bid without knowing what third parties might offer.
ROFOs are generally considered less burdensome than ROFRs because they do not create the same “chilling effect” on third-party bidding. If the ROFO holder and the owner cannot agree on terms, the owner is free to seek third-party offers — and third parties know they are bidding in a genuinely competitive process, not one where the ROFO holder can simply match.
How ROFO Works
Process
- Owner decides to sell — the owner makes a decision to dispose of the asset
- Notice to ROFO holder — the owner must notify the ROFO holder of its intention to sell (and may include proposed terms)
- Negotiation period — the ROFO holder has a specified period (30-90 days) to negotiate and submit an offer
- Agreement or decline — if the parties agree on terms, the sale proceeds between them; if not, the owner can approach third parties
- Minimum terms protection — the owner typically cannot sell to a third party on terms materially less favourable than what the ROFO holder offered (or on any terms below a floor)
Key Variations
| Variation | How It Works |
|---|---|
| Simple ROFO | Owner must negotiate with ROFO holder first; if no deal, free to sell to anyone |
| ROFO with floor | If third-party offers are below the ROFO holder’s last offer, owner must return to ROFO holder |
| ROFO with matching right | Combines ROFO with a ROFR — if third-party offer exceeds ROFO holder’s bid, ROFO holder can match |
| ROFO with time limit | Owner must sell to a third party within a specified period or the ROFO resets |
ROFO vs. ROFR
| Feature | ROFO | ROFR |
|---|---|---|
| When triggered | When owner decides to sell | When third-party offer is received |
| ROFO/ROFR holder’s information | Limited — bids without knowing market price | Full — sees actual third-party offer |
| Chilling effect | Lower | Higher |
| Owner’s advantage | Retains flexibility to market broadly | Must give ROFR holder the last look |
| Holder’s advantage | First mover | Last mover (can match) |
Uses in M&A
Joint Ventures
ROFOs are the most common pre-emptive right in joint venture agreements:
- If one JV partner wants to sell its stake, the other partner gets the first opportunity to negotiate a purchase
- Balances the selling partner’s right to exit with the continuing partner’s interest in controlling who joins the JV
- Less restrictive than a ROFR, encouraging the selling partner to explore its options honestly
Real Estate
ROFOs over commercial property are frequently encountered in M&A involving property-intensive businesses. A tenant with a ROFO over the building can attempt to acquire it before the landlord markets it broadly.
Licensing and IP
Technology licensing agreements may include ROFOs giving the licensee the first opportunity to acquire the underlying intellectual property if the licensor decides to sell.
APAC Context
Australia — ROFOs are enforceable under Australian contract law and are commonly used in joint venture agreements, particularly in the resources sector. The Australian courts have interpreted ROFO obligations strictly — a party that fails to comply with the ROFO process may face damages or injunctive relief.
Hong Kong — ROFOs are standard in Hong Kong shareholder agreements and JV contracts. The drafting follows English common law principles, with particular attention to the definition of “decision to sell” (which triggers the ROFO obligation) and the negotiation period.
Singapore — ROFOs are widely used in Singapore M&A and JV documentation. The MAS regulatory framework does not specifically address ROFOs, but general contract law principles govern their enforceability.
According to Latham & Watkins M&A research, ROFOs have surpassed ROFRs in prevalence in private M&A shareholder agreements over the past decade, reflecting a market shift toward mechanisms that are less restrictive and create fewer third-party chilling effects.
“ROFOs give the holder a meaningful advantage without killing the competitive process,” observes Daniel Bae, founder of Amafi. “In APAC JV exits, where maintaining a competitive sale process is essential for maximising value, ROFOs are increasingly preferred over ROFRs.”
Structuring JV exits across Asia Pacific? Amafi helps companies and investors design exit mechanisms and shareholder protections. Learn more.