Ahead of the deal - Australian M&A briefing
Key insights
- Typically, in Australian schemes of arrangement, once a deal is signed, a target is subject to exclusivity obligations in a scheme implementation deed, including 'no-talk' and 'no-due diligence' obligations (subject to a 'fiduciary out'), a 'no-shop' obligation and notification and matching rights regarding competing proposals.
- A 'go-shop' clause effectively reverses this position by permitting a target to actively solicit competing bids for a limited period after signing a binding deal.
- Australian public M&A has traditionally favoured conventional exclusivity arrangements (unlike, for example, the US) because bidders place value on deal certainty. Once a bidder has invested time and money in due diligence and negotiations, it generally wants protection from being used as a stalking horse. A bidder will also point out that even without a go-shop, there is nothing stopping a rival bidder approaching a target anyway.
- That being said, there are a few examples of 'go-shop' clauses being used in Australian schemes. The current Brookfield/Reliance Worldwide scheme, which includes a 4 week 'go-shop period' for the target after signing of a binding deal, could mean we see more of these clauses, particularly where the target feels it has not adequately tested the market for other bids before signing.
While a 'go-shop' might sound like a significant concession for a bidder, in the right transaction, it can be the price of landing the deal with the target.
What is a 'go-shop' clause?
A 'go-shop' clause allows a target, after signing a deal, to actively solicit competing bids for a specified period.
This contrasts to the usual position for a target agreed in an Australian scheme implementation deed, which typically restricts the target from talking and providing due diligence information to rival bidders (subject to the target board's fiduciary obligations – i.e. a 'fiduciary out') and soliciting rival bids after the implementation deed is signed.
A 'go-shop' clause effectively reverses this position by permitting the target and its advisers to approach rival bidders, provide due diligence and negotiate alternatives for a specific period. The logic is that the target board can demonstrate it has thoroughly tested the market, it can help secure the board's recommendation and it gives shareholders comfort that there will be a pro-active process post-signing to find higher bids.
Why would a bidder agree to a 'go-shop' clause?
On its face, a 'go-shop' clause would appear to be a very unfavourable provision for a bidder, given it allows the target to proactively encourage rival proposals after the bidder has signed a binding deal.
However, there are circumstances where a 'go-shop' clause may be acceptable to a bidder, and the price of getting to a signed deal. This may be the case where the target board feels that it has not sufficiently tested the market before signing, or where the target board feels like it has not maximised the price possible for scheme shareholders from the deal with the bidder.
For a bidder, a 'go-shop' clause may, in the right circumstances, be an acceptable risk to take - by the time of signing, a bidder will have then completed diligence, negotiated the transaction and obtained a signed deal, and a rival bidder will be required to disrupt this, resulting also in payment of the break fee by the target to the bidder. Additionally, if no superior proposal emerges during the 'go-shop' period, the shareholder vote at the scheme meeting should be relatively straightforward and there should be a clear pathway to completion.
The current Brookfield/Reliance Worldwide scheme
'Go-shop' clauses are a relatively uncommon provision in Australian public M&A deals (unlike, for example, US deals). However, there have been a few examples, including Vistra's proposed acquisition of Mainstream Group Holdings in 2021 where Apex ultimately acquired Mainstream and KKR's proposed acquisition of MYOB in 2018/2019, however a superior proposal did not emerge in that transaction. Additionally, Adamantem Capital's / Liverpool Partners' proposed acquisition of Zenitas Healthcare in 2018 included a 10 business day period to respond to approaches post signing of the scheme implementation deed (i.e. a 'go-talk' provision), although, again, no superior proposal emerged.
The recently announced Brookfield/Reliance Worldwide scheme provides another current example, and indicates that 'go-shop' clauses do have a place in an Australian scheme of arrangement in certain circumstances.
In the Brookfield/Reliance Worldwide scheme, the scheme implementation deed, permits Reliance Worldwide and its advisers, for a 4 week period (the 'go-shop period'), to solicit and advance, unfettered, alternative proposals from other parties, including providing due diligence information and negotiating the terms of a rival proposal. Additionally, Reliance Worldwide is permitted to terminate the Brookfield scheme implementation deed to pursue a 'go-shop' proposal, provided Brookfield's matching right is complied with. If Reliance Worldwide terminates the implementation deed to pursue a 'go-shop' proposal, the break fee of US$25.3 million is also payable to Brookfield.
Notably, until the end of the 'go-shop period', Reliance Worldwide is not permitted to grant any third party any break fee, work fee or due diligence costs coverage (noting Reliance Worldwide itself agreed to a US$5 million work fee in its process deed with Brookfield). In addition, prior to providing any non-public information to a rival bidder, Reliance Worldwide must procure entry into a confidentiality agreement on terms no less favourable to the one with Brookfield. Finally, during the 'go-shop' period, Reliance Worldwide must notify Brookfield of any 'go-shop' proposal in relation to which it determines to grant due diligence access (unless it would constitute a breach of the board's duties), and Reliance Worldwide must notify Brookfield at the end of the period if it intends to pursue a rival proposal.
Consistent with the rationale of 'go-shop' clauses as noted above, Reliance Worldwide noted in the announcement of the binding transaction that "the "Go Shop" process provides us with the opportunity to explore broader buyer interest in RWC which will allow shareholders to be fully informed when making their decision on the Transaction." The 'go-shop' provision was agreed as part of the process deed entered into with Brookfield (which included pre-bid exclusivity obligations) in August 2026, indicating that the 'go-shop' clause may have been the price of landing exclusivity, not just a signed deal for Brookfield (recognising that obtaining exclusivity from the target and the associated work fee as noted above would have represented a favourable position for Brookfield).
The 'go-shop period' under the Reliance Worldwide transaction ends on 16 October 2026, so it will be interesting to see if a rival proposal emerges during the period. The KKR/MYOB scheme, which included a 'go-shop' clause did not, for example, result in a rival proposal emerging as noted above. However, to the contrary, the Mainstream Group Holdings situation in 2021 showed how a 'go-shop' provision can lead to a contested bidding process for a target. In that deal, the initial scheme implementation deed with Vistra at $1.20 per share included a one-month 'go-shop' provision. During the 'go-shop' period, SS&C Technologies made a superior proposal at $2.00 per share, a 67% premium to the Vistra offer and Mainstream terminated the SID and pursued the scheme with SS&C. Apex Group then emerged with an unsolicited higher offer which SS&C matched, resulting in a bidding war between SS&C and Apex. Apex finally prevailed at $2.80 per share and SS&C declined to match.
Do 'go-shop' clauses actually produce higher bids?
While it remains to be seen what, if any, rival bids, will emerge for Reliance Worldwide, Australian examples suggest that a 'go-shop' clause will not always result in a higher bid. Of note is that, despite being over the end of year period, the go-shop period in the KKR/MYOB transaction was for around 2 months rather than the 1 month period in the Brookfield/Reliance Worldwide and Vistra/Mainstream proposed transactions but did not lead to a superior proposal emerging. Evidence from the US also suggests that most go-shops do not ultimately produce a superior proposal. In many cases, the signed transaction remains the best available outcome.
There is a valid debate about whether a 'go-shop' is as effective as shopping the target before signing. A pre-signing process may generate broader competition (as we have seen in a number of current public M&A situations), while a 'go-shop' gives the target the certainty and leverage of an agreed transaction.
Much depends on the specific deal dynamics: the target’s shareholder base, the likely rival bidders, the complexity of diligence, the length of the 'go-shop' and the bidder’s matching rights. A 'go-shop' is not a substitute for a well-run sale process, but it can be a useful compromise.
Will we see more 'go-shop' clauses?
In our view, 'go-shops' are unlikely to become a standard feature of Australian public M&A deals. Australian practice has traditionally favoured conventional exclusivity because bidders place enormous value on deal certainty. Once a bidder has signed a deal, they have invested time and money in due diligence and negotiations, and generally want protection from being used as a stalking horse.
Target boards in Australia have significant latitude in how they handle proposals. There is no legal pressure to insist on a 'go-shop', and directors will not face litigation simply because they agree to a 'no-shop' rather than a 'go-shop'. Additionally, given 'no-talk' and 'no due diligence' obligations in a binding deal must also be subject to 'fiduciary outs', a target board may feel that traditional exclusivity provisions provide enough flexibility to respond to a competing proposal if one comes along (even though the target will not be able to solicit a rival bid).
We expect, however, that there will be more Australian deals with 'go-shops', particularly following the Brookfield/Reliance Worldwide transaction, where appropriate in the circumstances. In particular, where a target board feels it has not sufficiently surveyed the market by the time of signing, and the bidder is prepared to accept that risk for a break fee, a 'go-shop' can be an appropriate tool to land a deal.
We discuss 'go-shop' clauses and more in an upcoming episode of our Ahead of the Deal vodcast – stay tuned!
Authors: Tony Damian, Partner, Co-Head of M&A (Australia) and Amelia Morgan, Partner.
