Merger Agreement Anomalies: A Case Study in Incomplete Contracts

New paper posted

You may recall that back in July I posted a discussion of some seeming anomalies I found in reviewing the 2025 ABA Private M&A Deal Points Study:

I spent some time digging into those anomalies and examining them through the lens of incomplete contracting theory. It’s now a short (less than 5000 word) article, which has been posted to SSRN:

Bainbridge, Stephen Mark, Merger Agreement Anomalies: A Case Study in Incomplete Contracts (August 25, 2026). Available at SSRN: https://ssrn.com/abstract=7355358 or http://dx.doi.org/10.2139/ssrn.7355358

Abstract

This article uses the ABA’s Private Target Mergers and Acquisitions Deal Points Study to interrogate a puzzle that I initially took for evidence of bad lawyering: the persistent presence of undefined or unaddressed terms in sophisticated acquisition agreements.

Post-closing purchase price adjustments, representation and warranty insurance exclusivity, exclusive remedy provisions, and—most strikingly—the material adverse change (MAC) clause itself are all, in a nontrivial share of deals, left silent or vague on questions that seem central to what the parties are bargaining over.

Rather than treat these gaps as drafting failures, I turn to the incomplete contracting literature to ask what work silence and vagueness might be doing. I show that the literature offers not one explanation but several, and that they are not mutually exclusive: strategic vagueness (Choi and Triantis), renegotiation-lever theory (Denis and Macias, Quinn), risk-allocation architecture (Gilson and Schwartz), delegation to a trusted forum—here, Delaware’s accumulated MAC jurisprudence—stickiness and agency costs in boilerplate drafting (Anderson and Manns), and “agreeing to disagree” (Ben-Shahar).

Using the MAC clause as the central case study, I argue that the ABA data, properly read, actually vindicates rather than falsifies the strategic vagueness account. Ninety-eight percent of deals nominally “define” a MAC, but the core standard remains circular—defining a material adverse change by reference to materiality—while drafting effort is instead concentrated in an increasingly long and specific list of carve-outs. That two-part architecture is exactly what strategic vagueness predicts: precision where it is cheap and valuable across every deal, vagueness where specification cost is better deferred to the rare tail event that actually triggers litigation.

I then examine two harder cases that resist easy assimilation to strategic vagueness: the small percentage of deals with no MAC definition at all, and the larger percentage silent on RWI exclusivity. I argue that the first is genuinely underdetermined by the frequency data alone, admitting of several competing explanations that happen to generate the same observable correlation. The second, by contrast, is better explained as a structural or signaling gap than as vagueness properly understood, since exclusivity is a binary allocation question rather than an open-textured standard.

The larger methodological payoff is a caution against reading deal-points frequencies as revealed-preference evidence of efficient design without further cross-sectional data on deal size, structure, and counsel sophistication—data the published tables do not provide, and without which efficient deferral and lawyerly inattention remain observationally equivalent.

Keywords: incomplete contracts, contract theory, mergers and acquisitions, acquisition agreements