The American Bar Association’s M&A Market Trends Subcommittee of the Business Law Section has just published its biannual Private Target Mergers and Acquisitions Deal Point Study. This edition of the Study analyzes 136 publicly filed transactions that closed in 2012. This is a valuable resource for those that are negotiating transaction terms as it provides some empirical data to inform what constitutes “market” for a particular issue.
This Study’s results are interesting in that they do not show a unified trend toward more seller-favorable terms. While you would expect 2012 sellers to generally be in a stronger negotiating position compared to 2010 sellers due to improvements in general economic conditions, in fact it was a mixed bag with certain provisions shifting in a direction that benefited buyers and others moving the opposite direction.
A few highlights from the Study:
• Earnouts are being used less frequently (38% of 2010 deals had an earnout component compared to 25% of 2012 deals).
• Sellers are more frequently able to get carve-outs to the Material Adverse Effect definition (91% of deals in 2012 versus 87% in 2010 and 79% in 2008).
• Increasingly, Sellers will be imputed to have knowledge of facts that they should have known or could have known with reasonable investigation (80% of 2012 deals apply a constructive knowledge standard versus 73% in 2010 and 68% in 2008).
• Buyers are more often able to assert indemnification claims with respect to matters the seller disclosed prior to closing (of deals with a duty or right to update disclosure schedules, 61% found such disclosures did not limit buyer’s right to be indemnified against the disclosed events, up from 54% in 2010).
• Baskets and deductibles are getting smaller (the median basket in 2012 was 0.50% of deal value versus 0.65% of deal value in 2010).
• Escrows are also shrinking (among deals with escrows/holdbacks, the median escrow was 7.14% of deal value in 2012, but 9.19% in 2010 and 9.93% in 2008).
• Also of interest to M&A attorneys, increasingly transactions are closing without the requirement that target’s counsel deliver a legal opinion (19% of deals had a legal opinion requirement in 2012 versus 27% of deals in 2010 and 58% of deals in 2008).
Please note that since these were all publicly filed transactions, the dataset necessarily skewed a little toward larger transactions, with the median transaction value being $150mm. In other words, practitioners will need to exercise judgment in applying the Study results to much larger or much smaller transactions.
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