No-Shop Clause

You wanted to auction your company. You thought that, with 4 or 5 bidders, you’d get the price from $30 million to $40 million. But GOOG wanted it. They came at you hard. They know half the board members and deal with them on other deals, most of those deals much bigger than yours. So you have great trust for your board to do what’s best for you and only you…kinda.

Anyway, as part of GOOG’s offer, they included a line on their term sheet that was a No-Shop Clause. That means that GOOG has, say, 30 days in which to do due diligence on you, ferreting out any fraud or errors in your accounting or database. If they find errors, they can come back to you and adjust the price. Or just walk.

But if GOOG, after doing big due dilly, then walks...it sends a signal to the rest of the world that there’s something rotten in your Denmark. So likely nobody else will want to pay anything close to the price GOOG was gonna pay.

And you’re not talking with other companies at the same time to have a back-up plan. Why? Because of that darned No-Shop Clause. You cannot shop your company during the 30 days in which GOOG is inspecting your books. And when they’re done inspecting, they write you a check for the $30 million they offered and, well, that’s it. They own you then, whether you like it or not.