May 15, 2019

Study: Private Target Deal Terms

This SRS Acquiom study reviews the financial & other terms of 1,200 private target deals that closed during the period from 2014 through 2018. Here are some of the key findings about trends in last year’s deal terms:

– The median time from first investment round to exit increased to 7 years in 2019, up from 5 years in 2016

– Cash remained the preferred currency for private deals, with stock and cash/stock deals representing less than 15% of deals in 2018

– Post-closing purchase price adjustments are now guaranteed by separate escrows 56% of the time – compared to only 27% as recently as 2015.  More than 2/3rds of 2018 deals used “GAAP, consistent with past practices” as the methodology for preparing purchase price adjustments.

– Earnouts in non-life sciences deals dropped significantly.  Only 13% of those deals had earnouts last year, compared to 23% during 2017.  The size of earnouts also declined, representing just 27% of deal value in 2018 compared to 43% in 2017.

– The median general survival period for indemnity escrows was 15 months in both 2018 & 2017.  Median escrow size was 10% of transaction value. Over 90% of fundamental reps had a defined survival period, reflecting the continuing trend away from indefinite indemnities that began with the Cigna v. Audax decision.

– Nearly half of deals had “Big MAC” qualifiers for the accuracy of seller’s representations, up from 31% in 2015.  The more traditional formulation requiring those reps to be accurate “in all material respects” appeared 51% of deals.

There’s plenty of other interesting stuff to review in this study, including more on financial terms, closing conditions, indemnification, dispute resolution and termination fee arrangements.

John Jenkins