March 19, 2013

A Five-Year European Deal Study

Recently, this CMS study broke down European deal trends after a review of 1,700 deals done between 2007-2012. Some key findings:

– MAC clauses are much more popular in the US (being used in 93% of deals) than in Europe where they only appear in 14%. Another sizeable difference exists in the use of working capital adjustments as a criterion for purchase price adjustment, used in 77% of cases in the US as opposed to just 34% in Europe.The explanation for this may simply be the diversity that one sees in 50 different countries as opposed to 50 different states in one country.
– Earn-out deals are more popular in the US. 38% of US deals had an earn-out component compared with just 16% in Europe in 2012.
– Not only are baskets much more prevalent in the US, but the basis of recovery is different. In the US, 62% of relevant deals are based on ‘excess only’ recovery as opposed to ‘first dollar’ recovery compared with only 29% in Europe in 2012 for ‘excess only’ recovery.
– Basket thresholds tend to be lower in the US with 88% being less than 1% of the purchase price compared with 49% in Europe and that is probably because there is less payback for purchasers because of the prevalence of “excess only” recovery.