DealLawyers.com Blog

“Dead horse” deals are a part of every deal lawyer’s life.  But what makes a deal fall apart?  This Intralinks blog cites a recent study that asked that question. This excerpt summarizes the study’s findings about the factors that make it more – and less – likely that a deal will not make it to closing:

The probability of failed deal completions for public targets is influenced by five significant predictors: target termination fees (break fees), target and acquirer size, the target’s initial reaction to the deal announcement, the number of financial and legal advisers representing the acquirer, and the type of consideration offered to the target company’s shareholders. The probability of deal failure for public targets is reduced by: target termination fees, deals involving smaller targets and larger acquirers, agreed or solicited deals, multiple acquirer financial and legal advisers, and all-cash consideration.

The probability of failed deal completions for private targets is influenced by four significant predictors: the relative size of the target compared to the acquirer, the liquidity of the acquirer, the type of consideration offered to the target company, and acquirer termination fees (reverse break fees). The probability of deal failure for private targets is reduced for deals involving: smaller targets and larger acquirers, liquid acquirers, all-cash consideration, and acquirer termination fees.

Overall, the study found that announced deals involving public targets had a significantly higher failure rate (11%) than those involving private targets (4%).  The study also reviewed other causes for deals falling apart, including catastrophic outside events, and compared deal failure rates across a number of jurisdictions.

– John Jenkins