Abstract: 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 among even large US businesses, and affects M&A deal size, duration,
techniques, contract terms, and outcomes. These effects arise directly from the economics of dispersion, but also from interactions between economics and law. Dispersion creates
transaction costs and heterogeneous beliefs and preferences that have straightforward
effects on M&A deal size, techniques, and some contract terms. But dispersion also has
less intuitive, indirect, and important effects as mediated through laws that among other
things compensate for agency costs and collective action problems. Each key body of law
for M&A – contract law, corporate law, securities law, and antitrust law – is shaped in
practice by ownership of target firms. These effects are tested in 20 hypotheses on how
ownership dispersion affects M&A, with comprehensive M&A data from the 1990s and
2000s, and a new detailed hand-coded matched sample of 120 recent public and private
target M&A contracts. The data show the importance of ownership to M&A deal
structure, choice of consideration, bid duration, completion rates, risk-allocation, and
dispute resolution. Appreciation of how pervasive and powerful the effects of ownership
are on M&A should improve contracting and has implications for investment bankers,
boards, courts, and researchers in choosing comparable transactions for valuation,
benchmarking, doctrinal analogies, drafting models, teaching M&A in business and law
schools, and econometric modeling of M&A.