M&A Alert: Latest Mergers & Acquisitions Private Target Deal Points Study Released
The American Bar Association’s Business Law Section released its latest Mergers & Acquisitions Private Target Deal Points Study on Dec. 22, 2017. The study is produced every other year, with this most recent version covering 139 private target M&A transactions that signed or closed during calendar year 2016 and the first half of 2017. This version of the study is more current than earlier versions were when published, as earlier versions only included deals from the calendar year prior to publication.
This year’s study revealed that the incidence of many of the significant deal points has held fairly steady over the past several years, but there were a few notable trends:
The use of separate escrow accounts specifically to cover post-closing purchase price adjustments has risen dramatically since 2014 (45% of transactions in 2016/17, up from 25% in 2014).
For transactions structured as a signing with a deferred closing, substantially fewer include the right or obligation of a seller to update disclosure schedules between signing and closing (28% of transactions in 2016/17, down from 42% in 2014). Of those, 54% of 2016/17 transactions included limitations on the buyer’s right to indemnification for the updated matters, while only 37% contained such limitations in 2014. Additionally, 72% of 2016/17 transactions with a deferred closing required the seller to notify the buyer of breaches of the seller’s representations, warranties and covenants prior to closing, as compared to just 60% in 2014.
More transactions than in prior years included a general cap of under 10% of the purchase price (59% in 2016/17, up from 50% in 2014), but, of those, nearly half also included a reference to representation and warranty insurance.
The use of materiality scrapes continues to increase (85% of transactions in 2016/17, up from 70% in 2014).
Non-reliance provisions expressly stating that the buyer is not relying on any information or representations or warranties made other than those set forth in the acquisition agreement are becoming more common (55% of transactions in 2016/17, as compared to 40% in 2014).
For more information on this study, contact any member of the Gray Plant Mooty Mergers & Acquisitions team.
Alyssa Hirschfeld serves as a principal in the Corporate Transactions Group at Gray Plant Mooty and a member of the working group that produces the Mergers & Acquisitions Private Target Deal Points Study.