M&A Contracts: Purposes, Types, Regulation, and Patterns of Practice

Abstract

M&A transactions are governed by contracts that exhibit constrained variation – they are negotiated, yet full of boilerplate, tailored, yet full of patterns and regularities. This paper (a chapter of the Research Handbook on Mergers and Acquisitions, forthcoming) reviews the suite of contracts commonly needed in an M&A transaction, and offers two complementary descriptions of the core “deal contracts” in M&A. The first tracks the customary organization of the contracts themselves, and the second re-analyzes their contents with a new, functional typology derived from the purposes of deal contracts: (1) specification (especially of deal structure, pricing terms, and, in partial acquisitions, the business to be acquired), (2) risk-sharing, (3) process management, (4) control and information sharing, and (5) dispute management. Each description is illustrated by examples from and links to recent, high profile deals, augmented with cross-sectional data from a representative sample of M&A contracts involving U.S. targets. Ways that ownership and regulation shape M&A contracts for U.S. targets are summarized, and data consistent with that summary is presented. Finally, the rapidly growing body of empirical research on the contents and effects of M&A contracts is surveyed. The paper concludes with a brief agenda for future research on M&A contracts.