DealLawyers.com Blog

Seyfarth Shaw recently published the 2019 edition of its “Middle Market M&A SurveyBook”, which analyzes key contractual terms for more than 160 middle-market private target deals signed in 2018. The survey focuses on deals with a purchase price of less than $1 billion. Here are some of the highlights:

– Approximately 37.5% of non-insured deals surveyed provided for an indemnity escrow. The median escrow amount in 2018 for the non-insured deals surveyed was approximately 10% of the purchase price, with approximately 83% of the non-insured deals having an indemnity escrow amount of 10% or less, but only about 16% of the non-insured deals having an indemnity escrow amount of 5% or less.

– Approximately 55% of the insured deals surveyed provided for an indemnity escrow. The median escrow amount in 2018 for the insured deals surveyed was approximately 0.9% of the purchase price. The vast majority of insured deals had an indemnity escrow amount of less than 5% and, of those deals, nearly 94% had an escrow amount of 0.5%.

– Approximately 83% of non-insured deals had a survival period for reps & warranties of between 12-18 months, while approximately 9% of those deals provided that reps & warranties would not survive the closing.

– Approximately 70% of insured deals had a survival period for reps & warranties of between 12-18 months, but nearly 27% of insured deals provided that reps & warranties would not survive closing.

– Approximately 90% of non-insured deals surveyed provided for an indemnity basket. Of the non-insured deals providing for an indemnity basket, approximately 31% were structured as threshold/tipping baskets, and approximately 69% were structured as a deductible. This was generally consistent with past years (76% in 2017, 72% in 2016, and 75% in 2015 used a deductible).

– Approximately 73% of insured deals surveyed provided for an indemnity basket, compared to approximately 81% in 2017. The relative infrequency of indemnity baskets in insured deals versus non-insured deals is likely due to the increase in “no survival” deals when insurance is used, and therefore a basket is not relevant. Of the insured deals providing for an indemnity basket, approximately 8% were structured as threshold/tipping baskets, and approximately 92% were structured as a deductible, an increase from 2017 (86%).

The survey also covers other indemnity-related provisions, carve-outs from general survival provisions, fraud exceptions & definitions, and governing law provisions.

– John Jenkins