Contract Production in M&A Markets

46 Pages Posted: 19 Jan 2023 Last revised: 4 May 2023

See all articles by Stephen J. Choi

Stephen J. Choi

New York University School of Law

Mitu Gulati

University of Virginia School of Law

Matthew Jennejohn

Brigham Young University - J. Reuben Clark Law School

Robert E. Scott

Columbia University - Law School

Date Written: January 18, 2023

Abstract

Contract law scholarship has devoted considerable attention to understanding how contract terms are designed to properly incentivize parties to fulfill their obligations. Little attention, however, has been paid to the tradeoffs parties make between using widely used boilerplate terms and designing bespoke provisions. In thick markets such as those for corporate or sovereign bonds everyone uses the standard form despite the known drawbacks of boilerplate. But in thinner markets, such as the private deal M&A world, parties trade off costs and benefits of using standard provisions and customizing clauses to their needs. This Article reports on a case study of contract production in the M&A markets. We focus on the changes in contract law that have motivated commercial parties to contract over fraud. Initial moves to define fraud narrowly gradually spread across the market. Using both qualitative and quantitative data, we find evidence of an informal information network that transforms bespoke changes in contract terms into industry-wide standard provisions. This organic coordination structure leads to both market wide coordination as well as a diversity in this response as individual actors implement bespoke variations of the new standard.

Keywords: M&A, contract design, contract law, fraud, private equity

JEL Classification: K12, K22

Suggested Citation

Choi, Stephen J. and Gulati, Mitu and Jennejohn, Matthew and Scott, Robert E., Contract Production in M&A Markets (January 18, 2023). University of Pennsylvania Law Review, Forthcoming, Virginia Public Law and Legal Theory Research Paper No. 2023-08, Virginia Law and Economics Research Paper No. 2023-01, BYU Law Research Paper No. 22-28, Columbia Law and Economics Working Paper No. 665 , NYU Law and Economics Research Paper No. 23-18, Available at SSRN: https://ssrn.com/abstract=4328792

Stephen J. Choi

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

Mitu Gulati

University of Virginia School of Law ( email )

580 Massie Road
Charlottesville, VA 22903
United States

Matthew Jennejohn

Brigham Young University - J. Reuben Clark Law School ( email )

436 JRCB
Brigham Young University
Provo, UT 84602
United States
9175093028 (Phone)

Robert E. Scott (Contact Author)

Columbia University - Law School ( email )

435 West 116th Street
New York, NY 10025
United States
212-854-0072 (Phone)

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