Go-Shop Provision
A go-shop provision is a clause in a merger agreement that permits the target company's board to actively solicit competing acquisition proposals from third parties for a defined period after signing, typically 30 to 45 days, before the no-shop restriction takes effect.
When a target board agrees to sell the company to a specific buyer and signs a merger agreement, it might be concerned that shareholders will question whether the pre-signing process was robust enough to find the best possible buyer and price. The go-shop provision addresses this concern by explicitly building a post-signing market check into the deal structure, giving the target the contractual right — and sometimes the obligation — to go out and find a better deal.
During the go-shop period, the target's board and its financial advisors can proactively contact potential strategic and financial buyers, provide them with due diligence access, and negotiate alternative proposals. If a superior proposal materializes during the go-shop window, the target can accept it, typically after paying a reduced break-up fee to the original buyer. The reduced fee — often 1% to 2% of deal value versus the standard 3% to 4% — reflects the fact that the target agreed in advance to conduct this market check and the original buyer bears the risk of being topped.
After the go-shop period expires without a superior proposal emerging, the agreement typically transitions to a standard no-shop provision, during which the target board cannot solicit new proposals and can only respond to unsolicited 'fiduciary-out' superior offers under defined conditions.
Go-shop provisions are most common when the target board has conducted a limited pre-signing process — for example, in take-private transactions where a private equity firm approaches the board directly without a full auction. Courts and shareholders are more likely to accept a deal negotiated with a single buyer if there is a meaningful post-signing opportunity to surface higher bids. Private equity buyers sometimes prefer go-shops over full pre-signing auctions because they avoid the multiple rounds of bidding and diligence that a formal process entails.
Critics of go-shop provisions point out that they are often less effective than a pre-signing auction in maximizing shareholder value. By the time a potential competing bidder is approached post-signing, the original buyer has already done full due diligence and may have better information. The time pressure of a 30-to-45-day window, combined with the need for rapid due diligence and financing, creates a structural disadvantage for potential topping bidders.