Go-Shops vs. No-Shops in Private Equity Deals: Evidence and Implications
Harvard Business School
Business Lawyer, May 2008
Harvard Public Law Working Paper No. 08-09
Go-shop provisions have changed the way in which private equity firms execute public-company buyouts. While there has been considerable practitioner commentary on go-shops in the three years since they first appeared, this paper presents the first systematic empirical evidence on this new dealmaking technology. Contrary to the claims of prior commentators, I find that: (1) go-shops yield more search in aggregate (pre- and post-signing) than the traditional no-shop route; (2) pure go-shop deals, in which there is no pre-signing canvass of the marketplace, yield a higher bidder 17% of the time; and (3) target shareholders receive approximately 5% higher returns through the pure go-shop process relative to the no-shop route. I also find no post-signing competition in go-shop management buyouts (MBOs), consistent with practitioner wisdom that MBO's give incumbent managers a significant advantage over other potential buyers. Taken as a whole, these findings suggest that the Delaware courts should generally permit go-shops as a means of satisfying a sell-side board's Revlon duties, but should pay close attention to their precise structure, particularly in the context of go-shop MBOs.
Number of Pages in PDF File: 39
Keywords: Revlon duties, takeovers, private equity, going-private transactions
JEL Classification: D44, G14, G32, G34, K22, L14Accepted Paper Series
Date posted: January 17, 2008 ; Last revised: April 6, 2008
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