How Deals Die
The risk that a signed deal will nevertheless fail to reach completion has always been a focal point of public company mergers and acquisitions negotiations. This closing risk exists because the signing of a merger agreement and the completion of the planned deal do not occur simultaneously. Between the signing and closing, a multitude of […]
Morgan Ricks is the Herman O. Loewenstein Chair in Law at Vanderbilt University Law School and Da Lin is a Professor of Law at Victoria University of Wellington. This post is based on their recent paper.
The risk that a signed deal will nevertheless fail to reach completion has always been a focal point of public company mergers and acquisitions negotiations. This closing risk exists because the signing of a merger agreement and the completion of the planned deal do not occur simultaneously. Between the signing and closing, a multitude of factors can cause a signed deal to break: the acquirer may fail to secure the regulatory clearance or financing necessary for the purchase, a rival bidder for the seller could emerge and trump the original acquirer’s bid, market conditions may change so that one of the parties loses its appetite for the deal, and so forth.
Despite the ubiquity of closing risks in M&A practice, no prior work in either the finance or corporate law literature has provided a systemic account or analysis of these risks. In our new article, How Deals Die, we aim to draw closing risk into the open. In doing so, we show that attending to closing risk, as distinct from the deal structures and agreement terms that closing risk affects, can generate a variety of practical and doctrinal insights.
