DealLawyers.com Blog

The ABA recently announced the publication of its 2025 Private Target Deal Points Study. The Study was last updated in 2023, and this excerpt from the ABA’s announcement highlights some of the changes in market practice observed since then:

– Earnouts: Earnouts became less prevalent and displayed some buyer-friendly features. Use of earnouts decreased from 26% during the period covered by the 2023 Study to 18% during the period covered by the 2025 Study.  Earnouts are often used to address valuation gaps, and this data point suggests that valuation gaps narrowed somewhat during the period covered by the 2025 Study.

– RWI: The use of representations and warranties insurance (RWI) increased compared to the prior Study. 63% of deals during the period covered by the 2025 Study referenced RWI (our proxy for whether a transaction utilized RWI) as compared to 55% of the deals during the period covered by the 2023 Study.

– No Survival Deals: Deals that provide that representations and warranties do not survive closing increased from 30% in the prior Study to 41% in this Study. This increase is likely related to the increase in RWI deals.

– Indemnification for “Actual” vs. “Alleged” Breaches: Indemnity coverage for alleged breaches increased from 17% from to 27% in this year’s Study; this appears to also be driven by an increase in RWI deals.

– Single vs. Double Materiality Scrape: The use of double materiality scrapes increased from 69% to 82% in the prior study. Again, this increase appears to be related to the increase in the use of RWI.

This edition of the Study added several new data points, including how often transaction expenses are included in post-closing purchase price adjustments, how often deals that include the definition of “Material Adverse Effect” specify that a fact or condition existing at the time of signing the acquisition agreement could constitute an MAE, how often the failure/inability to adequately defend a claim could result in a loss of the indemnifying party’s right to control defense, and how often fraud is included in purchase agreements as a standalone indemnity.

The 2025 Private Target Deal Points Study is available for download without charge by members of the ABA’s Mergers & Acquisitions Committee (which members of the ABA Business Law Section can join without additional charge).

– John Jenkins