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27 March 2019 Financial Analysts Journal Book Review

Make the Deal: Negotiating Mergers & Acquisitions (a review)

  1. Arnold T. Davis, CFA

This overview of how merger and acquisition (M&A) deals are structured is primarily for those who understand the business rationale and potential value of a merger or acquisition but have had little exposure to legal concepts that drive the structure and documentation of M&A. Individuals working closely with legal advisers to take a deal from concept to close need to understand the legal concepts that drive the documentation of the deal. The author illuminates the essential structuring issues by discussing key agreements and critical clauses within those agreements and by narrating fictional stories of deals gone bad because of legal omissions.

Make the Deal: Negotiating Mergers & Acquisitions provides an overview of how to bring together business and legal knowledge for optimally structuring a merger or acquisition. Such an overview is particularly useful for the reader who is familiar with the strategic and financial reasons for buying a company, and perhaps has a general understanding of such high-level concepts as an asset transaction versus a stock transaction, but has had little exposure to legal concepts that drive the structure and documentation of mergers and acquisitions (M&As). By describing the components of the legal agreements used in M&As, the author helps readers improve their negotiating skills and increase their chances of a successful deal.

Make the Deal is a relatively concise, yet detailed, source to learn about why certain provisions are included in the documentation and how they can play out in the M&A process as a deal moves toward closing and beyond. The book also shows how to add value throughout the deal-making process. Author Christopher Harrison illustrates the ideas by showing more than 140 examples of the typical wording of these concepts in the legal documents. He also notes the parts of the provisions that are often subject to extensive negotiation.

Harrison is chief investment officer of the Falconwood Corporation and previous co-head of the asset management M&A law practice at Schulte Roth & Zabel. He explains in reasonable detail topics one would likely encounter in a merger or an acquisition, such as confidentiality agreements, key provisions and agreements, purchase price considerations, representations and warranties, covenants, closing conditions, termination rights and breakup fees, material adverse effects, equity and debt commitment letters, financing risk, competing offers, indemnities, and dispute resolutions. Harrison also explores common deal structures in more depth than most nonlawyers are likely to be familiar with. Importantly, he delves into the architecture of these agreements to explain how clauses within each of them can have important implications for the transaction’s outcome.

To help the practitioner understand the immense ramifications that seemingly innocuous clauses or oversights in drafting an acquisition can have, Harrison recounts fictional war stories in which oversights in legal drafting or other unexpected events led to unanticipated outcomes. For instance, he writes about a hypothetical small company that had a hot product. The company was purchased by a larger company with most of the purchase price structured as an earnout. When the acquiring company cut marketing funding to the newly acquired smaller company and sales subsequently fell, the selling shareholders were left with little value because the purchase agreement had no requirement to continue to fund the smaller company’s marketing efforts after the acquisition was completed.

Using a variety of sources, Make the Deal also attempts to define current accepted practice in a wide variety of issues related to M&A transactions. For instance, the book states that around 80% of deals have a waiver of jury trial, two-thirds of private deals have a no-shop restriction (which bars the seller from soliciting a purchase proposal from any other party), and one-third to one-half of private deals have a (third-party) legal opinion condition for closing.

Although a substantial body of work is available to explain the financial aspects of a merger or acquisition, this book focuses on the legal aspects and thus provides a bridge between the two worlds. It shows how legal agreements should support the business rationale for doing the deal and minimize the business risks to both the buyer and seller. Make the Deal would be useful to the individual engaged in a deal who wants to understand the details of the transaction’s legal agreements in order to increase the chances of a successful outcome.

Therefore, this book could be of significant benefit to CFA charterholders working on M&As, especially those who have moved into corporate development, private equity, or an M&A department. These readers should readily understand the investment metrics and rationale for an M&A transaction but might have less familiarity with the relevant contractual provisions.


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