Mergers and Acquisitions Processes and Structures

Course Number 1410

Professor John C. Coates (Harvard Law School)
Spring; Q3Q4; 3 credits
28 Sessions
Exam (one hour) and Final Paper
Enrollment: Limited to 30 HBS students

Career Focus

This course is designed for students pursuing careers involving mergers and acquisitions. Students who should consider the course include those pursuing careers in private equity, investment banking, hedge funds, large companies, or firms in industries that are actively consolidating. The course will include roughly equivalent numbers of law and business students, and is meant to provide a map of how law and regulation affects how M&A transactions are financed, designed, and implemented. An understanding of specialized deal processes and deal structures, along with an overview of typical kinds of potential value-relevant disputes and how the legal system resolves them, should be valuable not only for lawyers but for investors, managers, bankers, and others whose business decisions will depend on relevant laws.

More specifically on (a) the value-relevant processes through which control acquisitions of businesses pass, either as a legal requirement (e.g., shareholder approval) or as a business norm (e.g., negotiation) or both (e.g., due diligence) and (b) the value-relevant elements of the "structure" of deals, including the relationship among corporate entities and business units involved in typical deals (e.g., parent/sub, newco, divisions), the steps by which they are used to transfer control of a business (e.g., mergers), and the economic structures of the deal contracts (e.g., risk-sharing). The focus is the period between the decision to pursue a deal through deal completion, and only briefly on the strategic planning process that proceeds those phases or the integration process that follows.

Educational Objectives

The primary goal of the course is to provide an overview of M&A processes and structures and their causes and consequences. Why do some deals "close" the same moment the agreement is finalized, while others take months or even years to be completed? What are the key turning points in a deal process, and what are the major constraints facing deal participants in each phase?

Because the M&A process is shaped by law, an additional goal of the course is to familiarize business students with legal jargon, and the sometimes different frameworks that lawyers bring to thinking about business challenges and choices. Put differently, one goal of the course is to put HBS students in a position to ask for and know how to test the reliability of advice about laws important to M&A.

Secondary objectives of the course are (a) to put students in a position to "type" a deal (based on ownership, industry, and financing) and know the important implications of deal type for process (timetable, completion risk, important contingencies) and structure (legal and economic), (b) to familiarize students with what are typically the most contentious choices made by parties in choosing a deal process and structure, primarily by having them work in teams in negotiation and analytical exercises, and (c) to expose students to representative types of disputes that arise during different deal phases, how they are resolved, and the stakes involved in such disputes.

Content and Organization

The course is organized to track the typical M&A process, and has multiple units.

After a stage-setting introductory class, the first unit will cover the preliminary phase of a deal: due diligence, non-disclosure agreements, letters of intent, and exclusivity agreements.

The second unit takes up the core non-price components of any M&A transaction - structure and currency - with an emphasis on how they are strongly influenced by the ownership of the companies involved.

The third unit examines major types of risks involved in any acquisition and ways that deal contracts provide for risk allocation. This unit will also address major types of post-deal relationships that deal contracts create, such as transitional service arrangements, earn-outs and indemnities, and governance agreements.