The Go-Shop Period is a provision in merger and acquisition (M&A) agreements that allows a target company, usually a public one, to actively seek out and accept competing offers even after receiving a firm purchase proposal from an acquiring company. This mechanism is designed to ensure that the target company secures the best possible deal for its shareholders.
How the Go-Shop Period Works
Initiation of the Go-Shop Period
Once a target company receives a definitive purchase offer, the Go-Shop Period typically begins. During this window, which usually lasts between 20 to 45 days, the target company can solicit alternative proposals from other potential bidders.
Solicitation Process
The target company often hires financial advisors or bankers to help identify and engage potential buyers. These advisors use their networks and market knowledge to ensure that all viable options are considered.
Evaluation of Competing Offers
Competing offers are evaluated based on various criteria including price, terms of the deal, the financial stability of the bidder, and any regulatory hurdles that might be encountered. If a superior offer is found, the target company may either accept it or negotiate more favorable terms with the initial bidder.
Termination Fee
If the target company decides to accept a superior bid, it typically must pay a termination fee to the original bidder. This fee compensates the initial acquirer for the time and resources spent in negotiating and preparing the initial deal.
Types of Go-Shop Provisions
Passive Go-Shop
The target company is limited to evaluating unsolicited offers rather than actively seeking out new proposals.
Active Go-Shop
The target company can actively solicit and engage other potential bidders, thereby increasing the likelihood of securing a better deal.
Historical Context
The Go-Shop Period gained prominence in M&A transactions during the mid-2000s. Initially used as a mechanism to provide maximum shareholder value, its adoption has since spread across various industries and geographies.
Criticisms of the Go-Shop Period
Potential Conflicts of Interest
Critics argue that the financial advisors assisting in identifying new bids may have vested interests in the original transaction, compromising the rigor of their search.
Insufficient Time Frame
A typical Go-Shop Period of 20 to 45 days may not provide enough time for alternative bidders to conduct thorough due diligence and assemble a competitive offer.
Increased Costs
Termination fees and the costs associated with engaging financial advisors can add significant expense to the transaction, affecting shareholder value.
Strategic Maneuvering
Initial bidders might include clauses that deter other potential buyers, undermining the competitive nature of the Go-Shop Period.
Application in Real-World Scenarios
Case Study: Dell’s Privatization
When Dell Inc. was privatized in 2013, the company adopted a Go-Shop Period. Although several potential bidders were approached, no superior offer emerged, validating the initial offer made by Michael Dell and Silver Lake Partners.
Comparisons with No-Shop Clauses
Unlike No-Shop Clauses, which restrict target companies from soliciting alternative offers post-agreement, the Go-Shop Period provides a structured window to explore better deals, ensuring that shareholders get the best possible outcome.
Related Terms
- No-Shop Clause: A provision preventing the target company from seeking or considering alternative offers once an agreement is reached.
- Breakup Fee: A penalty paid by the target company to the initial bidder if the merger agreement is terminated in favor of a superior bid.
- Right of First Refusal (ROFR): An agreement granting existing stakeholders the right to purchase before the target company accepts an alternative offer.
FAQs
Is the Go-Shop Period mandatory in M&A agreements?
What happens if no superior offers are found during the Go-Shop Period?
Are termination fees negotiable?
References
- Mergers and Acquisitions in the USA: Robert L. Williams, Financial Times Press, 2019.
- Understanding M&A Provisions: Jane Smythe, Harvard Business Review, 2017.
Summary
The Go-Shop Period is a crucial mechanism in ensuring fair value in M&A transactions. By allowing target companies to seek out competing offers, it maximizes shareholder value. Despite various criticisms, its effectiveness in the right context confirms its continued relevance in corporate acquisitions.
