What Is a Market Check?
A market check is the process by which a target company’s board of directors tests whether a proposed acquisition price is the best available by soliciting or permitting competing offers. The market check satisfies the board’s fiduciary duty to maximise shareholder value — particularly under the Revlon doctrine — by ensuring that the company is not sold for less than it is worth.
The market check can be conducted before signing (a “pre-signing market check”), during a contractual go-shop period (a “post-signing active check”), or passively after announcement (a “passive market check” or “window-shop”). The type, scope, and timing of the market check depend on the transaction context, the board’s strategic assessment, and the acquirer’s willingness to accept competitive exposure.
Types of Market Checks
Pre-Signing Market Check
The target board and its financial advisor contact potential buyers before signing the definitive agreement:
| Phase | Activity |
|---|---|
| Preparation | Identify strategic and financial buyers, prepare CIM, set up data room |
| Outreach | Contact potential buyers under NDA, gauge interest |
| IOI phase | Collect non-binding indications of interest |
| Due diligence | Provide data room access to interested parties |
| Final bids | Collect binding offers and select the best proposal |
A pre-signing market check is the most thorough form of market testing because it exposes the company to the full universe of potential buyers before any commitment is made. It is standard in sell-side advisory mandates and auction processes.
Go-Shop (Post-Signing Active Check)
A go-shop provision in the signed agreement gives the target 30-60 days to actively solicit competing bids after signing. Go-shops are common in transactions where:
- A single buyer approached the target without a competitive process
- The board signed quickly to capture a favourable offer
- Private equity or management buyout dynamics limited pre-signing outreach
Passive Market Check (Window-Shop)
The announcement of the deal itself serves as a market check — any potential buyer can observe the announced price and decide whether to submit a competing offer. The target is protected by a fiduciary out that allows the board to accept a superior proposal even if a no-shop clause prohibits active solicitation.
| Type | Active Solicitation | Timing | Buyer Universe |
|---|---|---|---|
| Pre-signing | Yes | Before signing | Full canvass |
| Go-shop | Yes | Post-signing (30-60 days) | Targeted outreach |
| Passive / window-shop | No | Post-announcement | Self-selecting |
Why Market Checks Matter
Legal Protection
The primary purpose of a market check is to protect the target board against fiduciary duty claims. In In re Toys “R” Us Shareholder Litigation (2005), the Delaware Court of Chancery emphasised that a board’s process for evaluating the transaction — including its market check — is a key factor in determining whether the board fulfilled its Revlon duties.
A robust market check provides evidence that:
- The board explored alternatives before committing to a sale
- The winning bid emerged from a competitive process
- The price represents the best value reasonably available
Practical Impact on Price
According to research by Cornerstone Research, transactions that follow a market check (pre-signing or go-shop) result in an average final price 5-15% higher than the initial offer, reflecting the competitive tension created by the process.
Fairness Opinion Support
The target board’s financial advisor uses the market check results to support its fairness opinion. A thorough market check that failed to produce a competing bid strengthens the conclusion that the proposed price is fair — the market has been tested and no superior alternative emerged.
APAC Context
Australia — market checks are a standard feature of Australian public M&A. The target board’s independent expert (appointed under the Corporations Act) considers whether the target was adequately exposed to the market in assessing whether the offer is fair and reasonable. The Takeovers Panel may also examine the adequacy of the market check.
Hong Kong — the Takeovers Code requires that target shareholders receive an independent financial adviser’s opinion on the offer. The adviser considers whether the offer price reflects fair value, which implicitly involves assessing whether the market has been adequately tested.
Japan — market checks in Japanese M&A are evolving. The Ministry of Economy, Trade and Industry’s (METI) 2019 Fair M&A Guidelines recommend that target boards explore alternatives and conduct market checks, particularly in MBO and controlling shareholder transactions. These guidelines have strengthened the role of special committees in Japanese deal processes.
“A market check is the board’s insurance policy against claims that it sold the company too cheaply,” observes Daniel Bae, founder of Amafi. “In APAC, where deal processes are becoming more formalised and activist shareholders are increasingly willing to challenge inadequate prices, thorough market checks are no longer optional.”
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