Go-Shop commission

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. maximizing shareholder value: Allows the seller to receive potentially higher offers. 2. fulfillment of fiduciary duties: Assists the board in fulfilling its duties to shareholders. 3. market test: Provides the opportunity to validate the agreed transaction price in the market. 4. legal protection: Reduces the risk of shareholder lawsuits due to inadequate market testing.

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 actions 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: 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 after. 6. transitional arrangements: Provisions for dealing with bids received during the Go-Shop period but not finalized until after.

Legal and practical aspects:

1. fiduciary duties: Assists the board 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 to alternative offers and protection of sensitive information.

Advantages and disadvantages for the seller:

Advantages:
– Possibility of achieving a higher sale price – Reduced risk of shareholder lawsuits – Flexibility in transaction structuring 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 terms in other areas Disadvantages:
– risk of losing the transaction to a competing bidder
– possible need to rework 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: Negotiating the scope and process of bid matching

Industry-specific considerations:

– Public companies: Particular relevance due to increased scrutiny and disclosure requirements – Private equity: Frequently used to hedge against undervaluation allegations – 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 go-shop periods and associated fees – Integration of technology for more efficient execution 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 compliance by management boards

Documentation and implementation:

– Careful drafting of Go-Shop provisions in acquisition agreements – Development of detailed processes and timelines 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 probe 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 opportunity for a higher sale price and legal protection, they can also complicate the transaction dynamics and create additional uncertainty. In a constantly evolving M&A environment, go-shop provisions remain a relevant but often controversial element. Their use and structure 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.