What Is a Go-Shop Period?
A go-shop period is a provision that allows a public company to seek out competing offers even after it has already received a firm purchase offer. The original offer then functions as a floor for possible better offers. The duration of a go-shop period is usually about one to two months.
- Go-shop periods are a timeframe, generally, 1-2 months, where a company being acquired can shop itself for a better deal.
- Go-shop provisions generally allow the initial bidder to match any competing offers, and if the company is sold to another buyer they are generally paid a breakup fee.
- A no-shop provision means the company can’t actively shop the deal, which includes offering information to potential buyers or soliciting other proposals.
How a Go-Shop Period Works
The go-shop period is meant to help the board of directors fulfills its fiduciary duty to shareholders for the best deal possible. Go-shop agreements may give the initial bidder the opportunity to match any better offer the company receives, but normally pay the initial bidder a reduced breakup fee if the target company is purchased by another firm.
In an active mergers and acquisitions (M&A) environment it may be reasonable to believe that other bidders may come forward. However, critics say that go-shop periods are cosmetic for the board of directors, designed to give an appearance of acting in the best interests of shareholders but rarely resulting in additional offers because they don't give other potential buyers enough time to perform due diligence on the target company. Historical data has demonstrated that a very small fraction of initial bids is cast aside in favor of new bids during go-shop periods.
Go-Shop vs. No-Shop
A go-shop period allows the company being acquired to shop around for a better offer. The no-shop period affords the acquiree no such option. In the case of a no-shop provision, the company being acquired would have to pay a breakup fee if it decides to sell to another company after the offer is made.
Microsoft announced an intent to buy LinkedIn for $26.2 billion in 2012. This deal included a breakup fee, which would have been paid should LinkedIn decide to sell to another company. However, the tentative agreement between the two had a no-provision. If LinkedIn found another buyer it’d have to pay Microsoft a $725 million breakup fee.
No-shop provisions mean the company can’t actively shop the deal—that is offer information to potential buyers, initiative conversations with buyers, soliciting proposals, among other things. However, companies can respond to unsolicited offers, as part of their fiduciary duty. The status quo in many M&A deals is to have a no-shop provision.
Criticism of Go-Shop Periods
A go-shop period generally appears when the selling company is private and the buyer is an investment firm, such as private equity. Or, they are becoming more popular with go-private transactions, where a public company will sell via a leveraged buyout (LBO). However, a go-shop period rarely leads to another buyer coming in.