Ownership’s Powerful and Pervasive Effects on M&A

by John Coates, for The Harvard Law School Forum at Harvard Law School, Febraury 9, 2010.

Mergers and Acquisition (M&A) practices vary – indeed, practitioner lore is that every deal is unique.  But M&A deals have much in common.  M&A contracts, techniques, and outcomes vary systematically.  While practitioners exploit such patterns, few have been reported, analyzed, or considered in academic research, and not all practitioners fully reflect these patterns in their practices.  In a recent working paper, available here, I show that ownership dispersion is a first-order determinant of M&A practices.  Firms with dispersed ownership are more salient, and tend to be larger, but dispersion varies significantly even at large US businesses, and affects M&A deal size, duration, techniques, contract terms, and outcomes.

Privately held firms are an important part of the US economy, as is private target M&A. Most US business corporations had 100 or fewer owners, and those firms generated 20+% of corporate receipts in 2006.  Of businesses with more than $250 million in assets, only 18% were C corporations with 500+ shareholders.  Even at public companies, dispersion varies significantly.  A few have millions of record owners, and 500+ have 15,000+ shareholders. But 500+ “public” companies have fewer than 50 record shareholders, and over a third have fewer than 300 record holders.  These companies are the reverse of firms that have “gone dark” – they could deregister with the SEC, but instead voluntarily choose to “remain lit” and file regular reports…(continue reading)

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