How Deals Die

Abstract

The risk of deal breakage is central to merger and acquisition (M&A) dealmaking. Yet neither the finance nor corporate law literatures have systematically explored how and why deals fall apart. 

We rectify this deficiency, making three principal contributions. First, we develop a comprehensive typology of eight M&A outcomes: completed-as-announced deals and seven types of deal breakage. This precise mapping provides both positive and normative payoffs. Apart from revealing the multifaceted ways in which announced deals can be disrupted, we detail the starkly differing implications for the merging parties associated with each outcome type and thus illuminate why incorporating outcome heterogeneity is indispensable to empirical M&A research. Second, we unveil a novel dataset of 5,058 mergers and acquisitions involving U.S. public company targets signed between 1996 and 2020, for which we hand-collected deal documentation and hand-coded deal characteristics. This corpus is the first of its kind in terms of scope and data integrity. We use this data to provide a sustained empirical account of how often deals break, why deals break, breakage trends over time, and how deal breakage correlates with deal structure and other deal attributes. Finally, we demonstrate how our typology and data yield important implications for M&A practice and doctrine by casting new light on key debates over deal protection devices, the power of controlling shareholders, and "merger arbitrage" investors.

Keywords: mergers and acquisitions, corporate law, contracts