Is There a First-Drafter Advantage in M&A?

84 Pages Posted: 29 Jan 2019

See all articles by Adam B. Badawi

Adam B. Badawi

University of California, Berkeley - School of Law

Elisabeth de Fontenay

Duke University School of Law

Date Written: January 17, 2019

Abstract

Does the party that provides the first draft of a merger agreement get better terms as a result? There is considerable lore among transactional lawyers on this question, yet it has never been examined empirically. In this Article, we develop a novel dataset of drafting practices in large M&A transactions involving U.S. public-company targets. We find, first, that acquirers and sellers prepare the first draft of the merger agreement with roughly equal frequency, contrary to the conventional wisdom that acquirers virtually always draft first. Second, we find that there is little or no advantage to providing the first draft with respect to the most monetizable merger agreement terms, such as merger breakup fees. Third, and notwithstanding, we do find an association between drafting first and a more favorable outcome for terms that are harder to monetize, more complex, and that tend to be negotiated exclusively by counsel, such as the material adverse change (MAC) clause. These findings are consistent with the view that the negotiation process generates frictions and agency costs, which can affect the final deal terms and result in a limited first-drafter advantage.

Keywords: M&A, merger agreement, contract, bargaining power, auction, law firm

JEL Classification: D86, G34, K12, K22

Suggested Citation

Badawi, Adam B. and de Fontenay, Elisabeth, Is There a First-Drafter Advantage in M&A? (January 17, 2019). Available at SSRN: https://ssrn.com/abstract=3317622 or http://dx.doi.org/10.2139/ssrn.3317622

Adam B. Badawi

University of California, Berkeley - School of Law ( email )

215 Boalt Hall
Berkeley, CA 94720-7200
United States

Elisabeth De Fontenay (Contact Author)

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States

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