Deal innovations in mergers and acquisitions: do go-shop provisions create real benefits?

This study examines the effects of go-shop provisions on targets and bidders in merger agreements. We document that go-shop provisions have higher deal synergies and higher positive wealth effect on targets than no-shop deals. Further, go-shop provisions have a significant impact on the behavior of initial bidders but have no effect on bidders’ wealth. The go-shop period, the number of potential buyers contacted, the number of confidentiality agreements entered, and bifurcated termination fee structures are important determinants of deal outcomes. The findings support the shareholder interest theory, suggesting that go-shop provisions are an effective market canvas alternative to public auctions. JEL classification: G34; K22