There's an ever-growing list of reports and studies that collect, analyze and scrutinize various deal terms and other aspects of M&A transactions – or at least it feels that way. Like most committed M&A lawyers, we collect this stuff and I, for one, admit to spending a fair bit of time pouring over some of the details.
For anyone who has spent a significant amount of time negotiating M&A transactions, there's a pretty common question that inevitably comes up. What's market? At some point during the negotiations someone – a client, opposing counsel, an investment banker or some other party to the transaction – will confidently claim some term is or is not "market". This can often trigger one or more parties digging out various precedents and both public and private deal term studies and other internal experience learned through past transactions to cogently (or not) explain why a particular term is in fact not "market" or vice versa. One can debate the merits of negotiating in this kind of manner. Nonetheless most M&A lawyers will admit that deal term studies provide fertile ground for discussion and lots of fodder for negotiation. As my grandfather was known to say, "a man with one watch knows what time it is; a man with two watches is never sure".
Through periodic postings on this blog we will bring to your attention new studies as they come to light. We also plan to comment and provide critique, where appropriate, on deal term studies that have been published to date and their impact on M&A transactions. We will also note some distinctions in practice across different jurisdictions that are revealed through some of these deal term studies. We also encourage you, as readers, to tell us about new reports and other details and discrepancies that you have noticed.
Many reports are publicly available. These include:
- an annual M&A Deal Terms Study published by Shareholder Representative Services;
- the JP Morgan Escrow Services annual M&A Holdback Escrow Report;
- the annual Nixon Peabody LLP MAC Survey; and
- a periodic sponsor-backed going private transactions survey issued by Weil, Gotshall & Manges LLP.
In addition to these publicly available reports, there are also a broad range of private studies and reports available through various associations and private research firms and other groups.
The Subcommittee on M&A Market Trends of the Mergers and Acquisitions Committee of the American Bar Association's Business Law Section has published a series of deal points studies. To date, these studies have covered private target deals in the United States, Canada and Europe and public target deals in the United States. Having been personally involved in some cases, I will say these studies provide great examples of collaboration amongst lawyers at many firms internationally (including ours). Countless hours of volunteered time have been spent reviewing and analyzing transaction documents in an effort to collect, analyze, cross-check and report on the findings. This is one of a number of more visible, tangible reasons to join the ABA Business Law Section as a member.
Other firms, such as Practical Law Company, have made available some useful studies to their subscribers. These include a recent very detailed survey analyzing reverse break fee and specific performance remedies in US public deals. While we can't post them here, I'm sure the good folk at PLC would be happy to share some of their findings with you directly.
Now, getting back to the title of this post. What is market? I raise one particular critique on the merits of quoting deal term studies in proving out a position in negotiating M&A deals. Beware the deal professional (often a lawyer) who emphatically tells you something is "market" and, as the basis for ending discussion, digs out a deal term study (one referred to above or many others) as his or her evidence on the point.
This is a dangerous game to play, particularly with respect to private target deal studies. Take, for example, the ABA 2010 Private Target M&A Deal Points Study. This study reviewed a total of 62 publicly available acquisition agreements (filed on SEDAR) for transactions over a three year period (2007 to 2009) involving the purchase of a Canadian target by a Canadian reporting issuer. Now, let's try to compare that to the total number of deals completed over that same period. According to the Thomson Reuters deal database, there were no fewer than 1,224 reported M&A transactions with Canadian involvement in each of 2007, 2008 and 2009. On that basis, by my rough lawyer math, the ABA study would represent less than 1.7% of the reported deals in any of the given years. And that's just the deals "reported" to Thomson Reuters.
I don't want to take anything away from the very considerable effort on the part of many volunteers (yours truly included) but that's a very small sample of the deals out there. These studies are very helpful for many purposes but they provide only a small snap shot of deals meeting certain criteria. By no means do they represent the whole market.
So, what is market? Well, it depends. Now, go negotiate your own deal and don't put too much weight on what some deal terms study says.
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