Managing M&A Risk with Collars, Earn-outs, and CVRs

M&A transactions expose both the bidder and target shareholders to a number of major risks both prior to the close of the deal and during the post-close integration phase. The main pre-closing risk is the possibility that fl uctuations of bidder and target stock prices will affect the terms of the deal and reduce the likelihood the deal closes. After the closing, a major risk for bidder shareholders is the failure of the target to perform up to expectations, thus resulting in overpayment. 2006 Morgan Stanley.