Go-Shops vs. No-Shops in Private Equity Deals: Evidence and Implications

39 Pages Posted: 17 Jan 2008 Last revised: 2 Dec 2015

Guhan Subramanian

Harvard Business School

Abstract

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.

Keywords: Revlon duties, takeovers, private equity, going-private transactions

JEL Classification: D44, G14, G32, G34, K22, L14

Suggested Citation

Subramanian, Guhan, Go-Shops vs. No-Shops in Private Equity Deals: Evidence and Implications. Business Lawyer, May 2008; Harvard Public Law Working Paper No. 08-09. Available at SSRN: https://ssrn.com/abstract=1084586

Guhan Subramanian (Contact Author)

Harvard Business School ( email )

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