What Does
No-Shop Provision Mean?
A no-shop, or exclusivity, provision precludes the seller from directly or indirectly soliciting other buyers for alternative offers for an agreed upon period of time. The time frame for exclusive dealings in a no-shop provision typically ranges from 45 to 90 days. In some instances, a break-up fee may be negotiated if the buyer believes the seller may breach the no-shop provision and leave the buyer with all the costs for the dead deal.
Divestopedia Explains No-Shop Provision
No-shop provisions, or no-shop clauses, are very common in all letters of intent. It is rare that a buyer will work in good faith to close a deal without a period of exclusivity. Sellers should try to limit the initial no-shop period to as short a term as possible, with 60 days being an average exclusivity clause. In addition, the seller should ensure milestone dates are established to measure the progress towards closing. There should be a defined timetable in place for key dates such as the drafting of the purchase and sale agreement, finalization of financing, final board approval, finalization of appraisals, etc. If these milestones are not met, the likelihood of the deal closing diminishes and the no-shop provision should be revisited since the seller may have to pursue alternative buyers.