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 one to two 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
A go-shop period is meant to help a board of directors fulfill its fiduciary duty to shareholders and find the best deal possible. Go-shop agreements usually give the initial bidder the opportunity to match any better offer the target company receives. They also pay the initial bidder a reduced breakup fee if the target company is purchased by another suitor.
In an active mergers and acquisitions (M&A) environment, it may be reasonable to believe that other bidders may come forward. However, critics say go-shop periods are cosmetic, designed to give the board of directors the appearance of acting in the best interests of shareholders. Critics note that go-shop periods rarely result in additional offers, because they don't give other potential buyers enough time to perform due diligence on the target company. Historical data suggests a very small fraction of initial bids are 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 hefty breakup fee if it decides to sell to another company after the offer is made.
In 2016, Microsoft announced it would buy LinkedIn for $26.2 billion. The tentative agreement between the two had a no-shop provision. If LinkedIn found another buyer it would have to pay Microsoft a $725 million breakup fee.
No-shop provisions mean the company can't actively shop the deal—that is, the company cannot offer information to potential buyers, initiate conversations with buyers, or solicit 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. They are also 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.