No Shop Clause – Definition

Cite this article as:"No Shop Clause – Definition," in The Business Professor, updated December 14, 2018, last accessed October 21, 2020,


No-Shop Clause Definition

A no-shop clause is a clause included in an agreement or letter of intent between a seller and a prospective buyer that states the seller won’t solicit, discuss, or negotiate with other potential buyers in a given period of time. This clause restricts the seller from accepting any alternative acquisition proposals for the asset or business.

A Little More on What is a No-Shop Clause

Buyers enter into such agreement to ensure the seller does not negotiate a sale with anyone else in that period of time. The sellers generally try to avoid a long no-shop period as the buyer may exit from the deal after completing due diligence. This delays the process of selling for them.

The sellers accept a no-shop clause only when there is no other choice to move forward a deal. A potential buyer avoids a bidding war by entering into such an agreement. The price of the asset may rise if there are other interested purchasers. A no-shop clause limits the scope of the seller to raise the selling price of the asset.

A no-shop clause is very common in the letter of intents as the buyers expect a period of exclusivity before closing a deal. The typical time period of a no-shop clause is between 45 days and 90 days. Milestone dates may also be included in the clause when the seller can check the progress towards closing the deal.

Anonymity is an influential element in a high-stakes transaction. The seller agrees to accept the no-shop term as a gesture of good faith toward a buyer. A buyer with a strong position always includes this term in a letter of intent. During the no-shop period the buyer evaluates the deal and does the due diligence. As a strong buyer offers a good deal the seller agrees to this term.

A no-shop clause is a protection mechanism used by the buyers to enhance certainty in closing the deal. It protects their investment of time, fund and resources they use for evaluating a deal.
It takes some time for the buyer to finalize an acquisition or merger deal. Without a no-shop clause the seller may negotiate the deal with other potential buyers and if the seller succeeds to find a better deal the buyer may lose all their money and resources invested in evaluating the deal.

References for No Shop Clause

Academic Research on No Shop, No Solicitation Clauses

Gaining Perspective: Directors’ Duties in the Context of NoShop and No-Talk Provisions in Merger Agreements, Burgess, K. J. (2001). Colum. Bus. L. Rev., 431. This paper explains the gaining perspectives as regards the directors’ duties in the context of No-talk and No-shop provision in the Merger agreements. This paper also explains the no solicitation and the no shop clause.

When silence is golden: Why the business judgment rule should apply to noshops in stock-for-stock merger agreements, Hanewicz, W. O. (2002). J. Corp. L., 28, 205. This paper explains and argues that the business judgment rules as well as the Unocal enhanced scrutiny should be able to apply for most of the no-shop provisions in the stock-stock merger agreements. This study also argues that there are no such as the no-shop functionality as being different from various defensive measures in some major sectors. In this paper, the cost of judicial intervention is studied as being relatively high inasmuch as the nature of the inquiry served by the court will serve as a comparative risk of error in the scarcity of judicial resources and review.

No-Shop Clauses, Balz, K. F. (2003). No-Shop Clauses. Del. J. Corp. L., 28, 513. This research paper explains the no shop clause and some basic aspect of the no-shop clause. According to this paper, various assumptions was developed which helped to explain the No-shop clause.

Shopping During Extended Store Hours: From No Shops to Go-Shops-The Development, Effectiveness, and Implications of Go-Shop Provisions in Change of Control …, Sautter, C. M. (2007). Brook. L. Rev., 73, 525. This academic paper unlike other papers is the first and most recent scholarly paper to explore the most recent prevalence of the go-shop provisions in merger agreements. This paper however explains the effectiveness and developments of go-shops and also proves that since the Delaware Supreme Court’s landmark in Revlon. This study examines the shopping during the extended store hours rom no-shops to go-store. In a nutshell, this paper argues that the increase of the go-shop gives signals to the death of the movement towards a very pure and bidding process signaled by the Revlon Inc.

No-shop, no-talk and break-up fee agreements in merger and takeover transactions: the case for a fresh regulatory approach, Mayanja, J. (2002). Australian Journal of Corporate Law, 14(1), 1-25. This paper studies and show that the rules currently presiding over the actions of the directors’ power and term that as ineffective to protect the interest of society and shareholders in general in most cases which usually involve the use of break-up free agreements and exclusivity practices that are mostly fairly modern but which are increasingly rampant in most of Australia. Note that the breakup free agreements and the exclusivity agreements should be adopted where they are designed to increasingly maximize the shareholder wealth but not otherwise. This paper also studies ways in which the law could be readjusted to achieve these processes.

No free shop: Why target companies in MBOs and private equity transactions sometimes choose not to buy’go-shop’options, Antoniades, A., Calomiris, C. W., & Hitscherich, D. M. (2014). This paper studies the decision made by the target market in the MBO transactions and in the private equity either to actively “shop” the noted merger agreements preceding the shareholders’ approval. The decision taken to hold back options as regards shopping is predicted by a number of firm’s characteristics including more fragmented ownerships and larger size. This paper studies the impact of these characteristics and also the procedures taken by the firm’s legal advisory team as regards the chances of the inclusion of a go-shop provision in other to build a negative relationship between the initial acquisition premia and the go-shop.

Is There One Best Way to Sell a Company? Auctions Versus Negotiations and Controlled Sales1, Boone, A. L., & Mulherin, J. H. (2009). Journal of Applied Corporate Finance, 21(3), 28-37. According to this paper, the question on the best way to sell a company, the type of auction to adopt (should it be a wide-ranging action that attracts a large no of bidders or the exclusive negotiation method that allows just a single bidder? Or should it be a limited group of aspiring buyers which suggests a controlled sale)? All these questions were answered appropriately in this paper. Opposing the normal conventional study, the wide-range auction process according to this paper is greatly different from the dominant approach. And according to estimate, a little over half of the total M and A deals carried out by the analysts were accomplished by using the single-bidder auction approach.

Go-Shops vs. NoShops: Evidence and Implications, Kaplow, P. L., & Shavell, S. (2007). According to this study, comparison were carried out among the No-shops and the Go-shops and various important characteristics to note were discussed. However, the Pros and Cons of these two entities were also explained in this academic reaserch paper.

The Free Exercise Clause of the First Amendment to the United States Constitution is Not Defense to a Union Shop Agreement Allowed under the Railway Labor Act, Pope, D. B. (1970). Hous. L. Rev., 8, 387. This paper explains the free exercise clause of the fisrt ammendement to the United State constitution. However, this ammendement is not a defense to the Union shop agreemenrt which was allowed under the Railway labour Act. The whole rule and correlation between the Exercise clause was explained in the cause of this study.


13. Changing attitudes: the stark results of thirty years of evolution in Delaware M&A litigation, Laster, J. T. (2018). 13. Research Handbook on Representative Shareholder Litigation, 202. This academic paper states a number of challenging issues as a result of the 30 years of evolution in the Delaware M and A litigation. These problems were analyzed and various solutions were proffered to them.

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