Key Takeaways
- Allows target to seek better bids post-signing.
- Go-shop period typically lasts 20-60 days.
- Initial bidder sets minimum price as stalking horse.
- Encourages competitive offers with lower termination fees.
What is Go-Shop Period?
A go-shop period is a limited timeframe in a mergers and acquisitions (M&A) agreement that allows the target company to seek competing bids after signing the initial deal. This provision gives the target the right to solicit alternative offers, potentially improving shareholder value before finalizing the transaction.
This approach contrasts with a traditional tender process or earnest money arrangements that often restrict post-signing negotiations.
Key Characteristics
The go-shop period is defined by specific features enabling competitive bidding post-signing:
- Duration: Typically lasts between 20 to 60 days, giving the target time to engage other interested buyers.
- Solicitation Rights: The target can actively contact potential acquirers and share confidential information during this window.
- Floor Price: The initial bidder sets a baseline offer, which competing bids must exceed to qualify as superior proposals.
- Termination Fees: Tiered fees apply—lower during the go-shop to encourage bids and higher afterward to protect the initial bidder.
- Matching Rights: The original buyer may have the option to match or top any superior offer received.
How It Works
After signing the merger agreement with a go-shop clause, the target company and its advisors actively market the deal to other potential buyers. This solicitation phase allows the target to evaluate any superior offers that exceed the initial bid's terms.
If a better proposal emerges, the target board can terminate the original agreement by paying a reduced termination fee and proceed with the higher offer. If no superior bid is found, the deal closes with the original buyer, often protected by a subsequent no-shop provision.
Examples and Use Cases
Go-shop periods are common in competitive M&A scenarios where maximizing value is critical. For instance:
- Technology Sector: Microsoft has used go-shop-like mechanisms in deals to attract multiple bids, although some transactions may favor no-shop clauses to protect strategic interests.
- Automotive Industry: While not always publicized, companies like Delta have leveraged structured bidding periods to ensure optimal purchase terms during acquisitions.
Important Considerations
Implementing a go-shop period requires balancing the benefits of competitive bidding with potential deal uncertainty. Longer windows may improve shareholder outcomes but increase risk of deal failure or delay.
Additionally, understanding related concepts such as discounted cash flow (DCF) valuation can help assess whether superior proposals truly add value beyond the initial bid.
Final Words
A go-shop period can unlock higher bids and better deal terms by allowing the target to test the market after signing. If you’re involved in a transaction with a go-shop clause, carefully analyze any competing offers and assess whether they truly add value before deciding.
Frequently Asked Questions
A Go-Shop Period is a provision in an M&A agreement that allows the target company to seek competing bids from other buyers for a limited time after signing the initial deal. This period typically lasts between 20 to 60 days and helps ensure the target gets the best possible offer.
Unlike a No-Shop provision, which prohibits the target from soliciting other bids after signing, a Go-Shop explicitly permits the target to contact potential buyers and negotiate better offers within a set timeframe. This encourages competitive bidding and can increase shareholder value.
During the Go-Shop Period, the target company and its advisors actively market the business to other potential buyers. They share confidential information and negotiate bids that surpass the initial offer, giving the original bidder a chance to match superior proposals.
Companies include Go-Shop Periods to maximize value for shareholders by allowing competitive bids after signing. It also reduces entry costs for potential buyers and can serve as a fiduciary duty to seek the best deal possible.
Go-Shop Periods usually last between 20 and 60 days. Shorter periods (20-30 days) favor the initial buyer by limiting uncertainty, while longer periods (45-60 days) give the target more time to evaluate competing bids and potentially increase shareholder value.
Tiered termination fees are structured to be lower during the Go-Shop Period (often 1-4% of equity value) to encourage competing bids, and higher afterward to discourage deal disruptions once the period ends. If a superior bid emerges, the target can terminate the initial deal by paying these fees.
Yes, the original bidder usually has matching rights, allowing them to meet or beat any superior proposal that arises. This gives the initial buyer a chance to retain the deal even if a better offer appears.
