April 13, 2020
Survey: Middle Market Deal Terms
Seyfarth Shaw recently published the 2020 edition of its “Middle Market M&A SurveyBook”, which analyzes key contractual terms for more than 100 middle-market private target deals signed in 2019. The survey focuses on deals with a purchase price of less than $1 billion. Here are some of the highlights:
– Approximately 25% of the non-insured deals surveyed provided for an indemnity escrow (as compared to approximately 37.5% in 2018). The reduction in the number of deals providing for indemnity escrow is likely as a result of the increase in the number of “no survival” deals.
– Approximately 43% of the insured deals surveyed provided for an indemnity escrow (as compared to approximately 55% in 2018). The reduction in the number of deals providing for indemnity escrow is likely as a result of the increase in the number of “no survival” deals.
– The median escrow amount in 2019 for the non-insured deals surveyed was approximately 10% of the purchase price (consistent with 2018), with approximately 83% of the noninsured deals having an indemnity escrow amount of 10% or less but only approximately 25% of the non-insured deals having an indemnity escrow amount of 5% or less.
– The median escrow amount in 2019 for the insured deals surveyed was approximately 0.6% of the purchase price (as compared to approximately 0.9% in 2018). It is plain to see the dramatic impact that R&W insurance has on the indemnity escrow amount (0.6% versus 10% for non-insured deals). The vast majority of insured deals had an indemnity escrow amount of less than 5% and, of those deals, approximately 91% had an escrow amount of 1% or less.
– The median indemnity escrow period for non-insured deals was 13.5 months and the median for insured deals was 12 months.
The survey also covers other indemnity-related provisions, rep & warranty survival provisions & carve-outs from general survival provisions, fraud exceptions & definitions, and governing law provisions. One interesting observation is the number of “no survival” deals – approximately 29% of non-insured deals & 41% of insured deals provided that reps & warranties wouldn’t survive closing.
Of course, all of these deals pre-dated the Covid-19 crisis, and as I read the data, I can’t help wondering how different some of it may look in next year’s survey.
– John Jenkins