Designing M&A Selling Mechanisms: Go-Shop Negotiations

72 Pages Posted: 11 Dec 2018

See all articles by Zhe Wang

Zhe Wang

Pennsylvania State University - Department of Finance

Date Written: November 8, 2018

Abstract

In the past decade, a new selling procedure called “go-shop negotiation” has gained popularity in mergers and acquisitions. With a dynamic mechanism design approach, I fully characterize the target’s revenue-maximizing mechanism, and find that it resembles a go-shop negotiation under certain parameter values; with other parameter values, it is similar to a standard auction or a traditional “no-shop negotiation”. The relevant parameters include the correlation of bidders’ valuations, due diligence cost, and expected gains from trade. The results are broadly consistent with empirical evidence, providing a potential explanation for the prevalence of go-shop negotiations in financial deals and distressed deals.

Keywords: M&A, Dynamic Mechanism Design, Costly Information Acquisition, Negotiations, Go-Shop Provisions

JEL Classification: G33, G34, D82, D86

Suggested Citation

Wang, Zhe, Designing M&A Selling Mechanisms: Go-Shop Negotiations (November 8, 2018). Available at SSRN: https://ssrn.com/abstract=3287321 or http://dx.doi.org/10.2139/ssrn.3287321

Zhe Wang (Contact Author)

Pennsylvania State University - Department of Finance ( email )

University Park, PA 16802
United States

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