DealLawyers.com Blog

This SRS Acquiom study  reviews the financial & other terms of 925 private target deals that closed during the period from 2014 through 2017. Here are some of the key findings about trends in last year’s deal terms:

– Earnouts in non-life sciences deals in 2017 increased significantly to 23%, while the size (relative to the closing payment) and length of earnouts decreased. Several key earnout terms (buyer covenants, accelerations, and offsets), trended in a seller-favorable direction.

– Termination Fees made a comeback in 2017, with the frequency of use of termination fees at least doubling in all categories. Seller termination fees increased from 7% in 2016 deals to 14% in 2017, Buyer termination fees went from 2% in 2016 to 5% in 2017, and two-way fees made up 2% of all deals in 2017.

– The median general survival period for representations and warranties dropped slightly again to 15 months, compared to 18 months in recent years. The median general escrow size remained steady at 10% of transaction value when deals with Buy-side RWI are excluded. Once again, deals valued at $50 million or less tend to have larger escrows as a percentage of transaction value.

– Fundamental representations survive for a defined period in 88% of 2017 deals, up from only 71% prior to the Cigna v. Audax decision. Similarly, the number of deals where claw-backs are limited to less than the entire purchase price has modestly increased.

– Use of deductible baskets increased significantly to 52% of 2017 deals, from 31% in 2015. Basket sizes are most frequently less than or equal to 1% of total transaction value.

– Pro-sandbagging clauses in agreements dipped to 48% of 2017 deals, the lowest in recent years; anti-sandbagging clauses rebounded to 4% of 2017 deals.

– Use of a Material Adverse Effect standard for the accuracy of seller’s representations and warranties at closing remained high at 41% in 2017 deals, compared with 43% in 2016 deals and only 31% of 2015 deals.

– John Jenkins