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Go-Shop
Practical Law Glossary Item 5-383-2191 (Approx. 3 pages)
Glossary
Go-Shop
An exception to the no-shop provision in a merger agreement that allows the target company to actively seek, discuss and negotiate an alternative transaction with a third party for a specified period of time, usually 30-60 days, after the execution of the merger agreement.
Go-shops supplement traditional fiduciary out and window-shop provisions. They are often included in the merger agreement when the target company has not conducted an auction (or has conducted a limited pre-signing market check) and has concerns that it has not entirely satisfied its fiduciary duties.
Reasons for Target Company to Favor a Go-Shop
A target company may prefer that the buyer rely on a go-shop rather than the target conducting a pre-signing auction because of the potential risks that an auction introduces. For example, the target company might have concerns that its market value will drop if it conducts a public auction and receives no (or low) bids. The target company might also have business reasons to avoid an auction, such as:
- The impact of the news of a possible sale on employee morale and retention.
- The possibility that customers will leave the company, rather than wait out the results of the auction.
- The possibility of leaks of confidential information to competitors (or deliberate disclosure if a competitor expresses interest in making a bid).
Reasons for Buyer to Accept a Go-Shop
Although go-shops favor the target company, some buyers may agree to a go-shop because:
- It helps avoid the delay of an auction or pre-signing market check. The go-shop allows the transaction to move toward closing during the market check.
- It provides the buyer some comfort that a court will not find that the board has breached its fiduciary duties because of its failure to conduct a pre-signing market check.
- Having already signed an agreement with the target company, the buyer knows it has an advantage over competing bidders, who must offer a price that is higher than the aggregate amount of the buyer's offer and the cost of the break-up fee, and who have less time to evaluate the target company and determine the purchase price.
Go-shops are primarily found in transactions with private equity buyers, who tend to have a stronger preference for avoiding a full-blown auction. They often feel at a disadvantage in an auction setting when pitted against strategic buyers who can offer other competitive advantages to the target company. Strategic buyers, on the other hand, typically disfavor go-shops, even if the target company has not conducted a robust market check, because they do not want to be used as a mere stalking horse.
For more information about go-shop provisions, see Practice Note, No-Shops and Their Exceptions: Exceptions to No-Shops in Public Deals: Go-Shops.