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Why Have M&A Contracts Grown? Evidence from Twenty Years of Deals

Harvard Law School John M. Olin Center Discussion Paper No. 889

European Corporate Governance Institute (ECGI) - Law Working Paper No. 333/2016

65 Pages Posted: 2 Nov 2016 Last revised: 8 Nov 2016

John C. Coates, IV

Harvard Law School

Date Written: November 2016

Abstract

Over 20 years, M&A contracts have more than doubled in size – from 35 to 88 single-spaced pages in this paper’s font. They have also grown significantly in linguistic complexity – from post-graduate “grade 20” to post-doctoral “grade 30”. A substantial portion (lower bound ~20%) of the growth consists not of mere verbiage but of substantive new terms. These include rational reactions to new legal risks (e.g., SOX, FCPA enforcement, shareholder litigation) as well as to changes in deal and financing markets (e.g., financing conditions, financing covenants, and cooperation covenants; and reverse termination fees). New contract language also includes dispute resolution provisions (e.g., jury waivers, forum selection clauses) that are puzzling not for appearing new but in why they were ever absent. A final, notable set of changes reflect innovative deal terms, such as top-up options, which are associated with a 18-day (~30%) fall in time-to-completion and a 6% improvement in completion rates. Exploratory in nature, this paper frames a variety of questions about how an important class of highly negotiated contracts evolves over time.

Keywords: Merger; Acquisition; Contract; Contract Evolution; Legal Services; Agency

JEL Classification: D23; D74; D82; G13; G32; G34; G38; K12; K13; K22; K40

Suggested Citation

Coates, IV, John C., Why Have M&A Contracts Grown? Evidence from Twenty Years of Deals (November 2016). Harvard Law School John M. Olin Center Discussion Paper No. 889; European Corporate Governance Institute (ECGI) - Law Working Paper No. 333/2016. Available at SSRN: https://ssrn.com/abstract=2862019 or http://dx.doi.org/10.2139/ssrn.2862019

John C. Coates (Contact Author)

Harvard Law School ( email )

1575 Massachusetts
Hauser 406
Cambridge, MA 02138
United States

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