July 27, 2017

“Bid Sweeteners”: What Do Private Sellers Find Persuasive?

In a competitive market, bidders are always looking for an edge over the competition – and “bid sweeteners” are one way of doing that. This McDermott Will study reports the results of a survey of more than 100 dealmakers, bankers & other M&A professionals concerning the persuasiveness of various bid sweeteners used in private company deals.

Here’s an excerpt dealing with various seller-friendly indemnification alternatives:

Almost 90% of respondents considered the offer to purchase representations and warranties (R&W) insurance as persuasive (42%) or very persuasive (47%), which confirms the increased reliance on R&W insurance by M&A professionals as a strategic tool to secure a deal.

Absent R&W insurance, the most persuasive escrow amount used to sweeten a bid in a private M&A transaction was between 3–5% of enterprise value, which falls comfortably between the escrow amount generally used in deals with R&W insurance (less than 2%), if any, and the escrow amount customarily used for private company deals (5–15%). Respondents also confirmed that offering a deductible (instead of a tipping basket), a de minimis claim threshold or an anti-sandbagging provision remain popular deal sweeteners

The survey addresses the effectiveness of bid sweeteners used in a number of other areas – including monetary terms, reps & warranties, and closing conditions and certainty issues.

John Jenkins