As any M&A practitioner will tell you, acquisition agreements can be a challenge to read and even more challenging to draft. In fact, no one ever drafts these lengthy agreements from scratch. Most often, the drafting process starts with the use of a standard form agreement with several key sections, including the structure of the transaction, price terms, representations and warranties, covenants, closing conditions and termination rights, which make up the bulk of the agreement. These sections work together and interrelate with each other so that parties are in essence designing a package of rights and obligations.
To say that most agreements include the same key sections is of course not to say that the specifics don’t differ or matter. In general, whichever side (generally the buyer’s lawyers) gets to draft the initial agreement will use its own form agreement with provisions that it deems to be buyer or seller friendly. Form agreements, and detailed commentaries about these forms, are an invaluable tool for junior lawyers who are just beginning to learn to work with these agreements. In practice, I came across a lot of valuable commentary on form agreements, but this commentary did not always take a critical view of some of the provisions, especially the boilerplate, that were commonly used.
Since joining the academy, I have been somewhat surprised that there is not more scholarship studying in detail complex agreements. Of course, especially in the past ten years, scholars are increasingly producing insightful articles that address complex agreements (see Gordon's piece here). But, given that we as lawyers have greater expertise with contractual arrangements than those in other fields, I do hope that we will produce more cutting edge scholarship about deal terms and structures.
There is a lot of value that legal scholars can add here. Clearly the intersection of various provisions in contracts can be difficult to understand and the terms vague. For example, an interpretation of the extent to which a failure of certain closing conditions in an acquisition agreement may result in termination rights involves judgments about the interplay of these terms and knowledge about judicial precedents, or lack thereof, interpreting certain contractual terms. Moreover, assessing the extent to which parties are allocating risk by the use of certain closing and termination rights depends on a careful reading and interpretation of the intricacies of the contractual language. This can be a cumbersome process. In putting together my recent paper, I (and my fabulous research assistants) spent months looking at termination and remedies provisions in acquisition agreements and their interrelationship with other contractual provisions, such as buyer covenants regarding financing. At times, the contracts were relatively straightforward. Other times, the contracts included conflicting provisions that were hard to interpret or conflicted (such as in the infamous URI v. Cerberus case) and involved a nuanced understanding of contracting to figure out what was really going on.
Practitioners rarely have the time to conduct these types of large-scale studies of complex agreements (plus, how do you bill clients for this kind of work?). One hopes that greater scholarly study of existing contractual terms can help lawyers get away from instinctively relying on precedent and get more creative when structuring contracts.
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