No-Shop Provision

A no-shop provision is a clause in an acquisition agreement that forbids the target company’s board from seeking, soliciting, or encouraging alternative acquisition offers from other potential buyers. Once signed, the target must focus exclusively on completing the agreed deal, though most provisions carve out a narrow exception for unsolicited superior proposals.

Why deals need exclusive windows

The acquirer writing a large cheque—or assuming substantial debt—requires confidence that the target will not shop itself around while negotiations proceed. A no-shop clause gives the buyer that assurance. Without it, the target’s board might feign commitment to one buyer while coaxing competing bids, driving up price and destabilizing the original deal. The acquirer’s cost of capital, financing conditions, and diligence timelines all depend on deal certainty. A no-shop cures that moral hazard.

The target’s board, meanwhile, fiduciaries to their shareholders, typically agrees to exclusivity because they have already negotiated price, terms, and deal certainty with a credible buyer. The upfront price often reflects the surrender of the right to shop—though many deals include an exception (the fiduciary-out-clause) that preserves the board’s ability to engage with a materially superior unsolicited proposal.

The typical architecture

A standard no-shop has two layers: a hard stop and a fiduciary-out window.

The hard stop forbids the target and its advisors from soliciting offers or providing confidential information to any third party without the buyer’s consent. The target cannot ring other bidders, stage auctions, or leak deal details to the market. Senior management, the board, and investment bankers are all bound.

The fiduciary-out window, by contrast, permits the board to accept (or negotiate) a bona fide unsolicited proposal that the board determines, in good faith, is superior to the agreed transaction. The target may then engage the rival bidder to develop the proposal, and even terminate the original agreement if terms become more attractive—though termination typically triggers a reverse termination fee (sometimes called a “break fee”), usually 3–4% of deal value.

Scope and what remains permitted

A no-shop does not prevent:

• Passive receipt and review of unsolicited proposals (as long as the board does not encourage or facilitate them)
• Good-faith negotiation of a superior unsolicited proposal if the board invokes the fiduciary-out clause
• Provision of information to lenders, debt arrangers, or other parties necessary to finance or complete the agreed deal
• Public disclosure of the deal itself, once announced

Many modern agreements also include go-shop provisions—the inverse of no-shop—where the target has a defined window (often 30–45 days) to actively solicit competing bids after signing. This approach reflects the board’s confidence in the original buyer and desire to test the market one final time. If a superior bid emerges, the target typically pays a higher break fee; if none does, the original buyer and no-shop take hold.

Enforcement and breach

Breach of a no-shop is usually enforced through:

1. Reverse termination fee – The target pays the buyer a contractually agreed sum (often 3–4% of enterprise value) if it terminates to accept a superior proposal or fails to close due to breach.
2. Specific performance – A court orders the target’s board to perform their duties and close the deal as agreed.
3. Damages – The buyer sues for lost profits, costs, or other consequential harm.

The most potent enforcement tool is typically the reverse termination fee, because it is mechanical—no proof of damages required—and large enough to make breach economically irrational. A typical fee of USD 100–300 million can make an alternative buyer’s premium evaporate.

Courts generally uphold no-shop clauses as reasonable protections for buyer certainty, provided the fiduciary-out exception is genuine and not illusory. A board cannot use the fiduciary-out to shop the company without legitimate legal basis; doing so invites liability. The threshold for “superior proposal” is high: price must be materially better, financing must be solid, and the rival bidder must be credible.

The tension between certainty and process

No-shop provisions reflect a core tension in M&A: buyers demand deal certainty and price stability, but target shareholders expect their board to pursue the highest value. The definitive-merger-agreement typically balances these by imposing a hard no-shop with a narrow but real fiduciary-out. The board surrenders the right to shop proactively but retains the duty to respond to a genuine superior offer.

This is why the breadth and clarity of the fiduciary-out clause matters enormously in practice. A restrictive definition of “superior proposal”—requiring a percentage-point premium, or excluding certain financing conditions, or imposing a matching right for the original buyer—can neuter the board’s practical flexibility. Conversely, a broad fiduciary-out can make the original buyer’s exclusivity feel hollow if unexpected bids surface.

Markets also recognise this tension: deals with a prominent go-shop provision, or a broad fiduciary-out, sometimes trade at a lower certainty premium (the buyer accepts higher deal risk) but may attract a larger population of rival bidders, raising the eventual price.

See also