Definition
A go-shop clause is a merger-agreement provision allowing the target to actively solicit competing acquisition proposals during a defined window (typically 30–60 days) after signing. Used most often in management-led buyouts or sponsor LBOs where the price is at risk of being challenged as inadequate.
Why it matters
A go-shop addresses the Revlon concern about pre-signing process inadequacy: by allowing post-signing market-checking, the board can credibly argue it has tested the market for higher bids. In MFW-structure deals, a go-shop can also support business-judgment review.
Mechanics
- Target’s bankers actively contact potential acquirers
- Confidentiality agreements (with standstills) signed for diligence
- If a superior proposal emerges, the target can terminate and pay a (typically reduced) break-up fee
Two-tier break-up fees
Many go-shop deals have a lower break-up fee for terminations during the go-shop window (favoring competing bidders) and a higher fee for terminations after the window closes.