M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Friday, June 25, 2010

Private and Public Merger Waves

Maksimovic et al have recently posted a paper, Private and Public Merger Waves, analyzing merger waves.  It's not all that surprising that they find public companies are more likely going to be involved in cyclical merger waves than private companies.  They suggest that access to capital is the determining factor in the public company's participation.  I tend to agree - when firms have access to cheap capital they tend to go overboard.  On the other hand, they suggest that acquisitions "on the wave" are more successful.  I think there's a host of anecdotal and - if you give me a minute - empirical data that suggests buying at the crest of a merger wave never works out well.

Abstract: We examine the participation of public and private firms in merger waves and their outcomes. We show that public firms participate more in mergers and acquisitions than private firms and are more cyclical in their acquisitions. Public firms are also impacted more by macro factors including credit spreads and aggregate merger activities. Plants acquired on-the-wave realize more gain in productivity. We show that our results are not just driven by the fact that public firms have better access to capital. Using productivity data early in the firm's life, we find that better firms select to become public and that we can predict higher participation in productivity-increasing mergers and acquisitions ten and more years later after a firm's initial appearance. Our results suggest that a firm's potential can be identified early and that high potential firms become public in anticipation of accessing capital in the public markets when opportunities arise.


June 25, 2010 | Permalink | Comments (0) | TrackBack (0)

Thursday, June 24, 2010

More on the Constitutionality of DGCL 203

The May edition of The Business Lawyer just arrived in my inbox.  This edition is the proceedings from a recent symposium on the constitutionality of state anti-takeover laws (DGCL 203) in spired by Guhan Subramanian et al's piece, Is Delaware's Antitakeover Statute Unconstitutional? Evidence from 1988-2008.  The symposium includes contributions from Eileen Nugent (A Timely Look at DGCL Section 203), A. Gilchrist Sparks (After 22 Years, Section 203 of the DGCL Continues to Give Hostile Bidders a Meaningful Opportunity for Success), Stephen P. Lamb (A Practical Response to Hypothetical Analysis of Section 203's Constitutionality), and Larry Ribstein (Preemption as Micromanagement) among others. 

Definitely summer beach reading.  Too bad it's not available in a Kindle version!


June 24, 2010 in State Takeover Laws, Takeover Defenses | Permalink | Comments (0) | TrackBack (0)

Tuesday, June 22, 2010

Litigator's Role in M&A

OK, so you're a summer associate or a junior litigation associate in a NY firm.  Probably the highest stakes litigation around for your clients may well entail a proposed merger and a challenge to it.  Your not uncommon reaction to realizing that most of your litigation work will be focused on corporate related matters may well be - "But, uh, I didn't take corporate law. ...  I'm a litigator."    If you're a summer associate, don't worry, that's what your 3L year is for.  If you happen to have gotten out of law school with taking corporate law or M&A, there's always this:  Courtney Rosen's The Litigator's Role in M&A Transactions.  It's a quick review (42 pages) of everything a litigator needs to know after getting tossed into litigation over an M&A transaction.  It's no substitute for taking an M&A class, but its focus on the process of litigation, including privilege and discovery issues will be useful.  


June 22, 2010 in Delaware, Litigation | Permalink | Comments (0) | TrackBack (0)

Monday, June 21, 2010

Financial Structure of LBOs

Axelson et al have a recent paper, Borrow Cheap, Buy High?  The Determinants of Leverage and Pricing in Buyouts, that provides cross-sectional review of LBO structures.  The paper reinforces the notion that cheap and readily available credit is the mother's milk of the LBO boom.    

Abstract: This paper provides an empirical analysis of the financial structure of large buyouts. We collect detailed information on the financing of 1157 worldwide private equity deals  from 1980 to 2008. Buyout leverage is cross-sectionally unrelated to the leverage of matched public firms, and is largely driven by factors other than what explains leverage in public firms. In particular, the economy-wide cost of borrowing is the main driver of both the quantity and the composition of debt in these buyouts. Credit conditions also have a strong effect on prices paid in buyouts, even after controlling for prices of equivalent public market companies. Finally, the use of high leverage in transactions negatively affects fund performance, controlling for fund vintage and other relevant characteristics. The results are consistent with the view that the availability of financing impacts booms and busts in the private equity market, and that agency problems between private equity funds and their investors can affect buyout capital structures.


June 21, 2010 in Leveraged Buy-Outs, Private Equity | Permalink | Comments (0) | TrackBack (0)