What Is a No-Shop Clause?
A no-shop clause — also called an exclusivity provision or non-solicitation agreement — is a contractual restriction that prevents a seller from actively seeking or engaging with alternative acquisition offers after entering into an agreement (typically an LOI or definitive agreement) with a preferred buyer.
The clause protects the buyer’s investment of time, resources, and deal costs during the final phase of a transaction — a critical stage of the sell-side M&A process — by ensuring the seller is not simultaneously shopping the deal to other parties.
How No-Shop Clauses Work
Once a no-shop clause is in effect, the seller is typically prohibited from:
- Soliciting competing proposals — actively approaching or encouraging other potential buyers
- Providing information to competing bidders — sharing confidential information or data room access
- Engaging in discussions or negotiations with alternative buyers
- Entering into agreements with other parties for the sale of the company
The clause is binding for a specified period — typically 30–90 days in the context of an LOI, or from signing through closing in a definitive agreement. Understanding where no-shop provisions fit within the broader M&A process is essential for both buyers and sellers.
No-Shop vs. Go-Shop
In some transactions, particularly those involving public companies or private equity-backed sales, a “go-shop” clause replaces or supplements the no-shop provision:
| No-Shop | Go-Shop | |
|---|---|---|
| Seller’s obligation | Cannot seek competing offers | Actively encouraged to seek competing offers for a limited window |
| Duration | Entire exclusivity/signing-to-closing period | Typically 30–45 days post-signing |
| Rationale | Protects buyer’s exclusivity | Ensures the board has satisfied its fiduciary duty to seek the best price |
| After window expires | N/A (already in effect) | Converts to a no-shop for the remainder of the period |
| Common in | Private transactions, LOIs | Public company transactions, PE take-privates |
Fiduciary Out
Even in transactions with strict no-shop provisions, boards of directors retain a “fiduciary out” — the right (and obligation) to consider unsolicited superior proposals if failing to do so would breach their fiduciary duties to shareholders.
A typical fiduciary out provision allows the board to:
- Receive unsolicited proposals (the no-shop prevents solicitation, not receipt)
- Determine whether the proposal could reasonably be expected to lead to a “superior proposal”
- Engage with the competing bidder if the board concludes in good faith (usually after consultation with legal and financial advisors) that the proposal is or could become superior
- Terminate the existing agreement in favour of the superior proposal, typically subject to payment of a break-up fee
Break-Up Fees
No-shop clauses are often paired with break-up fees (also called termination fees) — payments the seller must make to the buyer if the deal is terminated in favour of a competing offer:
- Typical range — 1–4% of the transaction’s equity value
- Purpose — compensates the buyer for deal costs and the opportunity cost of exclusivity
- Deterrent effect — makes it more expensive for a competing bidder to disrupt the deal, as the premium they must offer must exceed the break-up fee. These deal protection mechanisms are a standard part of the negotiation toolkit
No-Shop Clauses in Asia Pacific
No-shop provisions in Asia Pacific M&A transactions largely follow international norms, but enforcement and cultural dynamics differ. In Japan, the concept of exclusivity is reinforced by relationship norms — walking away from an agreed deal carries reputational consequences beyond legal liability. In Australia, no-shop and no-talk provisions in public company schemes of arrangement are subject to regulatory scrutiny and must be structured to comply with Corporations Act requirements. Lyndon helps advisors manage competitive processes and timeline commitments across the region’s diverse legal frameworks.
Related Terms
LOI (Letter of Intent)
A partially binding document submitted by a prospective buyer after due diligence, setting out the proposed purchase price, key transaction terms, and a request for exclusivity to negotiate a definitive agreement.
MAC Clause (Material Adverse Change)
A contractual provision in M&A agreements that allows a buyer to withdraw from a transaction if events occur between signing and closing that materially and adversely affect the target company's business, financial condition, or prospects.
SPA (Share Purchase Agreement)
The definitive, legally binding contract in an M&A transaction that sets out all terms and conditions for the sale and purchase of a company's shares, including price, representations, warranties, indemnities, and closing conditions.
SPAC
A Special Purpose Acquisition Company — a publicly listed shell company formed to raise capital through an IPO for the sole purpose of acquiring an existing private company within a specified timeframe.