What is a no-shop clause?
A no-shop clause is a contractual commitment by a seller to stop actively soliciting, encouraging, or negotiating competing offers for the business during a defined period. It hands the buyer a window of exclusivity in which to complete diligence, finalize financing, and negotiate definitive documents without the risk of being outbid mid-process.
It typically first appears in the letter of intent or term sheet — the point at which a buyer is about to spend real money on legal, accounting, and advisory diligence and wants assurance the seller will not use that work to shop a better price elsewhere. The provision then often carries through into the definitive purchase agreement.
The clause protects the buyer's investment of time and cost. A seller that has signed a no-shop cannot run a parallel auction during the exclusivity window; doing so would breach the agreement.
What a no-shop actually restricts
A well-drafted no-shop covers more than just declining other offers. It usually restricts the seller from:
- Soliciting. Initiating or encouraging any competing proposal, or marketing the business to other parties.
- Negotiating. Entering into or continuing discussions with any other potential acquirer regarding a sale.
- Providing information. Furnishing diligence materials or data-room access to a competing bidder.
- Disclosing. In some forms, even informing the buyer if an unsolicited offer arrives — though many no-shops carve out a duty to notify.
The restriction runs for a stated exclusivity period — commonly a matter of weeks, sometimes extendable — after which, if no deal has signed, the seller is free to reopen the field.
No-shop versus fiduciary-out
In public-company deals, a pure no-shop can collide with the target board's fiduciary duties to shareholders. Boards therefore often negotiate a fiduciary-out: an exception that lets the board respond to a genuinely superior unsolicited proposal despite the no-shop, usually paired with a termination fee payable to the original buyer if the seller walks.
In private deals, no-shops tend to be cleaner and stricter, because there is no board acting for a dispersed shareholder base. The practical distinction is between a no-shop, which forbids the seller from seeking other bids, and a go-shop, which deliberately permits the seller to canvass the market for a limited window after signing.