June 21, 2017

Study: Private Target Deal Terms

This SRS Acquiom study reviews the financial & other terms of 795 private target deals that closed during the period from 2013 through 2016. Here are some of the key findings about trends in last year’s deal terms:

– Earnouts in non-life sciences deals in 2016 remained steady at 14%, but they were much more often based on a specific metric other than revenue or earnings, 36% of 2016 deals using such other metrics compared to only 13% of 2015 deal.

– Use of a separate escrow for post-closing purchase price adjustments increased to 39% of 2016 deals that had purchase price adjustment mechanisms, up from just 27% in 2015.

– The median general survival period for representations and warranties dropped slightly to 16 months, compared to 18 months in recent years.

– Use of deductible baskets jumped to 42% of 2016 deals, from 30% in 2015.

– Pro-sandbagging clauses in agreements continued to grow, in 58% of 2016 deals, up from 52% in the prior 2 years; anti-sandbagging clauses dropped to 0% of 2016 deals.

– Inclusion of a materiality scrape for determining both breach and damages almost doubled from 19% in 2015 deals to 34% of 2016 deals.

– Use of a Material Adverse Effect standard for the accuracy of seller’s representations and warranties at closing jumped to 43% in 2016 deals from only 31% of 2015 deals.

The survey also notes that the Delaware Chancery Court’s decision in Cigna v. Audax continues to influence a number of deal terms, including the survival periods for “fundamental” reps & warranties and the structure of appraisal rights conditions.

John Jenkins