Background Note | HBS Case Collection | March 2009

Evaluating M&A Deals: Floors, Caps, and Collars

by Carliss Y. Baldwin

Abstract

As equity consideration has become more popular in acquisitions, so has the use of the "pricing-protection" mechanisms, such as floors, caps, and collars. These contractual devices provide insurance to the shareholders of the target and may protect the buyer as well. The purpose of this note is to define the main categories of price protection and explain their impact on the payoffs and value of the deal to the target's shareholders.

Keywords: Mergers and Acquisitions; Equity; Price; Contracts; Business and Shareholder Relations;

Citation:

Baldwin, Carliss Y. "Evaluating M&A Deals: Floors, Caps, and Collars." Harvard Business School Background Note 209-138, March 2009.