What you give up when you sign a no-shop
Exclusivity is more than a promise not to solicit another buyer.
A no-shop clause gives one buyer an exclusive period to complete diligence and negotiate definitive documents. It can be a reasonable step after the seller has selected a preferred proposal. It also transfers leverage, so the boundaries deserve close attention.
Review at least six elements.
First, duration: when does exclusivity begin, and does it end automatically on a stated date? Second, scope: does it prohibit only active solicitation, or also discussions, information sharing, and responses to unsolicited approaches? Third, covered parties: are owners, directors, employees, advisers, and affiliates all bound? Fourth, extensions: can the buyer extend the period unilaterally or by meeting loosely defined milestones? Fifth, remedies: what happens if the seller breaches? Sixth, termination: can the seller end exclusivity if the buyer changes material economics, delays diligence, or fails to deliver drafts?
The surrounding process matters. Before granting exclusivity, the seller should understand the proposed price, consideration, structure, financing, key conditions, management expectations, and diligence plan. The buyer should have enough access to make its letter of intent meaningful.
Legal duties and permitted exceptions vary by entity, governing law, and transaction, so counsel should draft and review the provision for the specific situation.
Exclusivity should buy focused effort toward a defined closing—not give a buyer indefinite control of the company’s alternatives.