Reached at his desk in Kansas City, Gary D. Gilson sounds busy. His firm has recently completed a merger to form Husch Blackwell Sanders LLP, and as with any merger, sorting out the integration issues takes time.

“It’s given me even more empathy for our clients who go through this all the time,” says the M&A partner.

 

Not that he’s complaining. In the current market, the number of deals that never make it to closing is on the rise. (See On the Rocks.) Gilson says that in his experience, 10 percent to 15 percent of proposed deals break up. Some reports have that figure up to 20 percent in 2007, he says, and you can expect that volatility to continue. The increase in failed deals is due directly to the credit crunch and worsening concerns of recession. On one side of the coin, lenders have to devote much of their capital to covering subprime losses, shrinking the pool of available funds. On the other side, performance is slipping as the overall economy stumbles, reducing the attractiveness of deals. It’s a harsh combination.

 

“The economics of the typical transaction have changed,” Gilson explains. “When you can’t leverage it as much, obviously you have to put in more equity, and you really have to pump up performance to get the rates of return that private equity sponsors want.” That means more broken deals, more damage to reputation and value, and more litigation. But there are things corporate counsel can do to moderate the risk.

 

Read the entire article at martindale.com.