Go-Shop Clauses: Post-Signing Market Checks
What Is a Go-Shop Clause?
A go-shop clause gives a target company an active window — typically 30 to 45 days after signing a merger agreement — to solicit and negotiate with competing bidders. If a better offer materializes during this period, the target may be able to terminate the original deal, usually with a reduced breakup fee.
Go-shop provisions are more seller-friendly than no-shop clauses and are increasingly common in private equity buyouts.
How a Go-Shop Works
- Definitive agreement is signed with the initial buyer
- The go-shop window opens, allowing the target to actively market the deal
- The target contacts potential competing bidders and provides information
- If a superior proposal emerges, the target can negotiate with the competing bidder
- The initial buyer typically has matching rights before the deal can switch
- After the go-shop period ends, standard no-shop restrictions apply going forward
Key Terms to Evaluate
- Duration — 30-45 days is typical, but shorter windows may not allow meaningful solicitation
- Reduced breakup fee — The fee for terminating during the go-shop period is usually lower (1-2% vs. 3-4% for post go-shop termination)
- Matching rights — How many days the original buyer gets to match and how many rounds of matching are allowed
- Excluded parties — Bidders who emerge during the go-shop may be classified as "excluded parties" and retain negotiation rights even after the go-shop closes
- Information rights — Whether the original buyer has the right to know who the competing bidders are
Why Go-Shops Exist
Go-shop clauses address the concern that a target's board may not have fully tested the market before agreeing to a deal. They provide evidence that the agreed-upon price represents fair value, helping insulate the board from shareholder litigation.
When to Consult a Lawyer
Go-shop provisions interact with fiduciary duties, breakup fees, and matching rights in ways that significantly affect deal dynamics. Consider involving experienced M&A counsel to structure these provisions optimally.
This article is for informational purposes only and does not constitute legal advice. Consult a licensed attorney for guidance specific to your situation.