This Norton Rose Fulbright blog discusses the findings of a recent study by Harvard Law professor – & former Wachtell partner – John Coates about the ever growing length of merger agreements. Coates’ study notes that merger agreements have more than doubled in length over the past 20 years.  Here’s an excerpt from the blog summarizing Coates’ conclusions about the reasons for the supersizing of deal documents:

Coates argues that the changes stem mainly from an increased appreciation of both relevant legal risks and changes in deal and financing markets and not from parties seeking to “grandstand” by adding provisions without significant content. Such provisions include sections addressing, for instance, financing conditions, reverse termination fees, specific performance, dilution, unlawful payments, and forum selection. As Coates writes, these kinds of provisions “represent rational responses by deal participants to a changed deal environment.”

In other words, documents have become lengthier because the M&A process continues to evolve and become more complex, and because dealmakers have improved their understanding of the risks associated with that process.

– John Jenkins

This Gibson Dunn memo takes a deep dive into issues surrounding the negotiation & drafting of drag-along rights.  Here’s an excerpt from the intro:

Drag-along rights, or drag rights, which give the majority owner of a company the right to force minority owners to participate in a sale of the company, can be a fiercely negotiated provision in a company’s governing documents.  These provisions implicate the rights a majority owner and minority owner will have in a future sale transaction, which could be years down the road and to an unknown buyer.

Many may view these provisions simply as a measure to get the parties to the negotiating table later in the event of a sale rather than as a measure to actually effect a sale, which means they are not troubled by the details or mechanics of drag-along provisions.  While this view may have merit, the relative leverage of the parties at that subsequent negotiating table may hinge on the relative strength of each party’s rights under the drag provisions.  As a result, it is important to pay careful attention to these provisions.

The memo reviews potential pitfalls, as well as best practices, that should be considered when negotiating drag rights.

– John Jenkins

As this Sheppard Mullin blog notes, the FTC & DOJ recently issued guidance warning companies about entering into agreements not to solicit employees and about sharing employment-related data with competitors.  This Cooley M&A blog discusses the implications  of this guidance on employee non-solicitation language customarily included in confidentiality agreements, and provides tips for handling employment & compensation matters in due diligence.  Here’s an excerpt suggesting some precautions for the due diligence process:

The guidelines acknowledge that a buyer in an M&A deal may need to obtain access to limited competitively sensitive information during the course of the negotiations but state that “appropriate precautions” should be taken. The guidelines do not, however, specify what those precautions should be. For practical purposes, it is appropriate to treat compensation information of highly-trained or specialized employees in a competitively-sensitive deal in the same way one would treat a trade secret or pricing.

Data room access can be restricted to only those who really need to view the information, & using a “clean team” to view the data – as is often done for intellectual property or any other sensitive information – can help protect against claims that information was inappropriately shared between competitors.

– John Jenkins

This NY Times’ “Deal Professor” column notes the rise of shareholder engagement strategies & the consultants who advise on them. As institutions become more assertive about governance, companies are turning to consultants – including a new firm co-founded by Chris Cernich, formerly ISS’ M&A Chief – to help them engage effectively with institutional investors:

This is where Mr. Cernich’s firm will come in, competing with CamberView and others trying to mediate the new dialogue between a company and its shareholders.

This is the future. Big institutional shareholders are working to define their relationships with public companies, and those companies are being forced to engage directly without intermediaries like I.S.S. In the midst of this, shareholders are still figuring out what they really want and whether they can change companies for good.

Have corporate engagement efforts been an effective response to activism?  This excerpt from Sullivan & Cromwell’s comprehensive memo reviewing 2016 activist campaigns suggests that the answer is “yes”:

The time and effort that companies and institutional investors have spent developing a mutual understanding of each other’s concerns have narrowed the opportunities for activists at high-profile companies, and the returns of activist funds overall are down in 2016.

Sophisticated engagement strategies seem to be mostly the province of large cap companies. The total number of activist campaigns remains high, due in large part to activism targeting small and mid-size companies.

– John Jenkins