September 7, 2003



To avoid being labeled by Larry and Broc as a blogless-wonder-for-life, I thought I’d incoherently spew about a pet peeve of transcendental proportions in M&A negotiations: “Does anyone really know what’s “market” or “standard?”

We’ve all heard – and even said – superficially deep statements like: “Well, a 10% liability cap is market” to “I’ve never seen a deal without ‘prospects’ in the MAE definition.” And yes, the most famous line ever to be uttered by the pre-puberty second year lawyer: “Oh, that’s standard in every deal I’ve seen” (Pretty persuasive stuff, huh?)

Does it ever make you wonder if the person using the “that’s standard or “that’s market” statement is truly arrogant enough to believe that that he’s the know-it-all of all deals terms under the sun? (Sometimes, it makes you wonder if the person is that smart – or that stupid.) Can this guy really detect a ripple in the Force?

To me, a “market term” depends on what part of the elephant that you, the blindfolded M&A lawyer, is touching. On one hand, you could think all merger agreements have “big trunk” terms or, on the other end (literally) of the elephant, you could think that all 10b-5 reps stink (and therefore aren’t “market.”).

Isn’t a “market term” just another negotiation tactic? Who really, really knows what’s market in the deal you’re negotiating? Don’t know but there are plenty of folks out there, however, that will be glad to tell you what they’re seeing (or think they’re seeing), with the hopes of convincing you that they’re in-the-know and you’re not.

As mentioned in some of Larry’s earlier blogs, Larry and I are in our third year of a study of deal points in publicly-disclosed middle market M&A deals. While I can tell you that purchase price caps show up about 22% of the time, I can’t tell you that a purchase price cap or any other cap level is “market.”

Is knowing “what’s market” more important than knowing why a particular term should be included or not – or worded a particular way? Whether you’re armed with statistical data from studies like ours or you possess a wealth of anecdotal evidence, I think “the why” is much more important than “the standard.” Of course, a combination of stats, deep anecdoctal evidence, AND “the why” probably works the best.

Which goes to prove – once again – that doing deals is more art than science.

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