I put this question to John Pollack and David Rosewater, M&A partners with Schulte Roth & Zabel. Pollack and Rosewater recently conducted a review of 25 mergers this year involving private equity and public companies. The deals had a minimum of $500 million in enterprise value.
Pollack and Rosewater found that about half of the deals surveyed, or 14, included a “go-shop.” J. Crew’s $3 billion sale to TPG Capital and Leonard Green had a go-shop, as well as Jo-Ann Stores’ $1.6 billion sale to Leonard Green.
Go-shops allow a company, after agreeing to a sale, to search out a superior offers for a certain period of time. But having a go-shop doesn’t mean a “topping” offer will come in. In fact, of the 14 deals that did have go-shops, only one actually resulted in a superior bid, according to the Schulte Roth study. In February, Thomas H. Lee Partners agreed to buy CKE Restaurants, parent of Carl’s Jr. and Hardee’s chains for $619 million. Apollo Management in April swooped in with a $693.9 million bid and eventually won the auction. The breakup fee was $15.5 million.
“It’s not all that common for go-shops to produce higher offers,” Rosewater says. “It happens but it doesn’t happen all that often.”
Those that use a go-shop also shouldn’t expect multiple bids. Go-shops, according to the Schulte Roth study, typically ranged from 21 to 54 days. The typical one averages around 30 days, the study says. This arguably could be too little time for a new player to come in, conduct due diligence and negotiate a deal, Pollack says. “Clearly a bidder with prior experience with the target company will have a timing advantage,” he says.
Still, go-shops can be useful to new bidders. The provision allows easy access to a target’s confidential information without requiring the new bidder to submit an indicative bid that is superior or “reasonably likely” to constitute a better offer, Pollack says.
Such provisions, of course, do allow companies and their boards to claim that they did everything they could to find the best offer. Go-shops just don’t necessarily produce better offers.