Steven Davidoff, formerly of Shearman & Sterling, now “The Deal Professor” (presumably a play on his other role as a professor at UConn Law) has written a Year-End Review that should be required reading for all deal lawyers. He breaks down the year’s developments in M&A practice, from the deals that fell apart and why, to the developments in structure.
He summarizes the year thusly:
As deal structures were stress-tested and the extreme economic conditions led to even more extreme transactions, practitioners learned about the limits of contract and deal-making. It was a time when lawyers saw the contracts they negotiated for years finally read — and too often litigated.
A recurring theme of the year was the shift in leverage, not only from sellers to buyers, but from buyers to lenders.
In the future, it will be a much uneasier relationship as lenders and buyers struggle with the same certainty issues that buyers and targets do. The result will be a struggle to turn debt commitment letters into more fully documented credit agreements, and private equity will seek to persuade banks to turn the spigot back on — of course, the banks here are not at the mercy of the securitization markets — all of which will drive banks to seek more onerous terms. There is now a real realization that the M&A relationship is a threesome, involving targets, acquirers and banks.
Despite the terrible M&A market measured by deals done, this year is going to set the tone for years to come. Gone (or effectively eviscerated) are the last vestiges of the MAC clause, thanks to Huntsman – Hexion. Litigators and judges have no sympathy for what transactional lawyers often brush off as minor errors and inconsistencies that result from tight deadlines and complex documents – just look at the mountains made out of molehills (some might say) in URI – Cerberus and ADS – Blackstone.
And, perhaps most tellingly, this year sounded the death knell for private-equity firms’ willingness to “put their reputation on the line” to get the deal done, irrespective of the apparent optionality of the documents. Too many targets have learned that the only real leverage is the breakup fee.
What were some of the most-interesting lessons you learned this year? Which deals and non-deals surprised you the most?
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