May 16, 2022

Study: Private Target Deal Terms

SRS Acquiom recently released its annual M&A Deal Terms Study, which reviews the financial & other terms of 1,900 private-target acquisitions valued at more than $425 billion that closed between 2016 and 2021. Here are some of the key findings about trends in last year’s deal terms:

– The market appears to be settling on how to deal with COVID-19 or pandemic-related matters. Some data trends, such as earnouts and termination fees, are returning to pre-COVID directions, but certain effects remain. Examples include carveouts to the definition of Material Adverse Effect for COVID-related items, COVID related seller representations, and a carveout for COVID to the covenant to conduct business in the ordinary course.

– The presence of RWI can materially affect certain deal terms, including use of a separate purchase price adjustment escrow, certain seller representations, survival, sandbagging, materiality scrapes, baskets, caps, and escrows.

– A higher number of U.S. public buyers in the SRS Acquiom data set for 2021 & a dramatic increase in M&A deals using buyer stock as consideration.

– A slight decrease in the number of deals with earnouts and a larger decrease in the percentage of consideration tied to earnouts. Earnout periods also trended shorter, with the median down to 22.5 months.

– The number of “no survival” deals (both with and without RWI identified) continuds to increase, up to 26% of all deals.

As always, the study contains plenty of interesting information about closing conditions, indemnification terms, dispute resolution and termination fees.

John Jenkins