Mergers & Acquisitions – a Simulation Model Used in the Negotiation Process

Today, more than ever, an essential element of any corporate growth strategy is growth through mergers and acquisitions. A survey conducted by PricewaterhouseCoopers reveals the fact that mergers and acquisitions are seen not only as instruments to avoid the global economic crisis, but also as an opportunity for firms to either buy their way into new technologies and expand, or to merge and bulk up. Not since the beginning of the 20th century has the economy seen such a massive restructuring. Whole industries are consolidating at a rate and a scale that is off the chart of historical experience. In this article we will discuss the MAC, MAE and information disclosure clauses, used in designing an M&A contract agreement. They can represent very important tools in a negotiation and the most beautiful part is that they are equally valuable to the buyer as well as to seller. An interesting analysis could be to look deeper into a cooperative surplus if both the seller ant the buyer will be fully aware of these tools and will use them in a cooperative game strategy, but in this paper we will limit our analysis to investigating them and simulating broad acquisition scenario in which these tools can be used by the buyer to reduce the risks associated with the transaction. In the next section we will analyze each clause as a separate tool to be used in negotiating a successful acquisition and then we will put them to work. For this, we will construct a reality based scenario for a real life acquisition, which took place in United States, to test the utility of these tools. The case we will analyze ended up in court and created losses for both the buyer and the seller. The purpose of our simulation is to create the incentives for a different outcome, this time a productive efficient one. We believe that these tools have the great advantage of allocating the endogenous risk to the seller leaving the buyer only with the exogenous risk.