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- Go-Shop Commission allows sellers to actively search for alternative offers during a limited period of time.
- Maximizing shareholder value through potentially higher bids and market tests.
- Fulfills the Management Board's fiduciary duties towards shareholders and reduces the risk of legal action.
- Typical elements include matching rights, break-up fees and specific time frames.
- Sellers benefit from a higher selling price, while buyers potentially lose negotiations.
- Negotiation strategies should precisely define the scope of activities and information management to ensure flexibility.
- Go-shop provisions are relevant in the evolving M&A environment and require careful legal drafting.
A go-shop provision is a clause in mergers and acquisitions (M&A) that allows the seller or target company to actively search for alternative, potentially better offers for a limited period of time after signing an acquisition agreement. This provision is in contrast to the more common no-shop clauses and gives the seller the opportunity to explore the market for the best possible offer.
Main purposes and functions:
1. maximization of shareholder value: Enables the seller to receive potentially higher offers.
2. fulfillment of fiduciary duties: Supports the Board of Directors in fulfilling its duties to the shareholders.
3. market test: Provides the opportunity to validate the agreed transaction price on the market.
4. legal protection: Reduces the risk of shareholder lawsuits due to inadequate market scrutiny.
Typical elements of a Go-Shop commission:
1. time frame: Definition of a specific period (usually 30-45 days) for the active search for alternative offers.
2. permitted activities: Definition of permitted activities during the Go-Shop period, such as:
– Contacting potential bidders
– Providing company information
– Conducting negotiations
3. information obligations: Obligation to inform the original bidder about competing bids.
4. matching rights: The right of the original bidder to adjust or improve its bid.
5. break-up fee: often lower fees during the go-shop period compared to the period afterwards.
6. transitional provisions: Provisions for dealing with offers that are received during the Go-Shop period but are not finalized until afterwards.
Legal and practical aspects:
1. fiduciary duties: Assists the Board of Directors in fulfilling its duty of care.
2. contract law: careful drafting to avoid conflicts with other contractual clauses.
3. competition law: compliance with antitrust regulations when passing on information.
4. confidentiality: balancing openness for alternative offers and protection of sensitive information.
Advantages and disadvantages for the seller:
Advantages:
– Opportunity to achieve a higher sales price
– Reduced risk of shareholder lawsuits
– Flexibility in transaction design
Disadvantages:
– Potentially negative impact on the relationship with the original bidder
– Risk of market uncertainty
– Additional time and resources required
Advantages and disadvantages for the buyer:
Advantages:
– Can lead to a faster initial agreement
– Possibility to negotiate more favorable conditions in other areas
Disadvantages:
– Risk of losing the transaction to a competing bidder
– Possible need to improve the offer
– Uncertainty during the go-shop period
Negotiation strategies:
1. time limit: negotiation of an appropriate duration of the go-shop period
2. scope of activity: precise definition of permitted search and negotiation activities
3. information management: definition of rules for the disclosure of company information
4. incentive structures: design of break-up fees to balance flexibility and commitment
5. matching rights: Negotiation of the scope and process of offer matching
Industry-specific considerations:
– Public companies: Particular relevance due to increased scrutiny and disclosure requirements
– Private equity: Frequently used to hedge against accusations of undervaluation
– Technology sector: adapting to fast-moving market dynamics and valuation volatility
Trends and developments:
– Increasing use in certain market segments, especially in private equity transactions
– More differentiated structuring of the Go-Shop periods and associated fees
– Integration of technology for more efficient implementation of Go-Shop processes
Judicial interpretation and precedents:
– Analysis of relevant court decisions on the appropriateness and implementation of go-shop processes
– Consideration of the impact on the assessment of due diligence by management boards
Documentation and implementation:
– Careful drafting of the go-shop provisions in takeover agreements
– Development of detailed processes and schedules for the implementation of Go-Shop activities
– Training of relevant team members on implementation and legal implications
Conclusion:
Go-shop provisions are an important tool in the M&A landscape aimed at aligning the interests of sellers, buyers and shareholders. They offer sellers the opportunity to explore the market for the best possible offer, while providing a degree of transaction certainty for the original bidder.
The effective design and implementation of go-shop provisions requires careful consideration of legal, economic and strategic factors. While they offer the chance of a higher sales price and legal protection, they can also complicate the transaction dynamics and create additional uncertainties.
In a constantly evolving M&A environment, go-shop provisions remain a relevant but often controversial element. Their use and design should always be considered in the context of the specific transaction circumstances, market conditions and legal framework. With the right balance, go-shop provisions can help promote fair and value-maximizing transactions while fulfilling management’s fiduciary duties.
