Go-Shops Revisited

Abstract

A go-shop process turns the traditional M&A deal process on its head: rather than a pre-signing market canvass followed by a post-signing “no shop” period, a go-shop deal involves a limited pre-signing market check, followed by a post-signing “go shop” process to find a higher bidder. A decade ago one of us published the first systematic empirical study of go-shop deals. Contrary to the conventional wisdom at the time, the study found that go-shops could yield a meaningful market check, with a higher bidder appearing 13% of the time during the go-shop period. In this Article, we compile a new sample of M&A deals announced between 2010 and 2018. We find that go-shops, in general, are no longer an effective tool for post-signing price discovery. We then document several reasons for this change: the proliferation of first-bidder match rights, the shortening of go-shop windows, CEO conflicts of interest, investment banker effects, and collateral terms that have the effect of tightening the go-shop window. We conclude that the story of the go-shop technology over the past ten years is one of innovation corrupted: transactional planners innovate, the Delaware courts signal qualified acceptance, and then a broader set of practitioners push the technology beyond its breaking point. In view of these developments in transactional practice, we provide recommendations for the Delaware courts and corporate boards of directors.

Keywords: Go-Shops, Mergers & Acquisitions, Takeovers, Private Equity, Corporate Law

JEL Classification: G30, G34, K22