A No-shop Provision (also known as a no solicitation clause) is a clause included in an agreement between the seller and the buyer that prevents the seller from soliciting purchase proposals from other parties for a given duration of time. In practice, the provision limits the seller from seeking other potential buyers of the business or asset once a letter of intent (also known as an agreement in principle) is entered into.
Large, high-profile companies often request these types of clauses. Sellers typically agree to these clauses as an act of good faith especially if their bargaining position is low or the acquisition premium is significant. The clause includes an expiration date in the agreement that by nature often limits the effect of the clause for a short period of time.
Example of a No-Shop Clause
The “No Shop” Period—No Solicitation of Other Offers
From the date of the No Shop Period Start Date until the earlier to occur of the termination of the Merger Agreement and the Effective Time, Instructure has agreed not to, and to cause its subsidiaries and its and their respective representatives not to:
- solicit, initiate, propose or induce or knowingly encourage, facilitate or assist any Inquiry (as defined below) or proposal that constitutes or could reasonably be expected to lead to an Acquisition Proposal;
- participate or engage in discussions, communications or negotiations with any Third Person regarding, regarding an Acquisition Proposal or Inquiry;
- furnish to any person (other than to Parent, Purchaser or any designees of Parent or Purchaser) any non-public information relating to the Instructure Group or afford to any person access to the business, properties, assets, books, records or other non-public information, or to any personnel, of the Instructure Group (other than Parent, Purchaser or any designees of Parent or Purchaser), in any such case with the intent to induce the making, submission or announcement of, or to knowingly encourage, facilitate or assist an Acquisition Proposal or any Inquiries or the making of any proposal or offer that would reasonably be expected to lead to an Acquisition Proposal;
- approve, endorse or recommend any proposal that constitutes, or could reasonably be expected to lead to, an Acquisition Proposal; or
- enter into any letter of intent, agreement in principle, memorandum of understanding, Merger Agreement, acquisition agreement or other contract relating to an Acquisition Transaction (as defined below), other than certain permitted confidentiality agreements.
No Shop Further Reading
Go-Shops vs. No–Shops: Evidence and Implications, Kaplow, P. L., & Shavell, S. (2007). This study compares No-shops and Go-shops and important characteristics with the pros and cons of each being discussed.
For more information of Go-shop agreements see our entry Go-shop.
