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M&A Alert: Latest Mergers & Acquisitions Private Target Deal Points Study Released

January 05, 2016 | Alert

The American Bar Association’s Business Law Section released its latest Mergers & Acquisitions Private Target Deal Points Study on December 30, 2015. The study is produced every other year, with this most recent version covering 117 private target M&A transactions that closed during 2014.

This year’s study revealed that the incidence of many of the significant deal points has held fairly steady over the past several years, but there were a few notable trends:

  • The use of eligible claim thresholds (“mini-baskets”) in indemnification continues its upward trend (38% of transactions in 2014, up from 30% in 2012 and 17% in 2010).
  • The use of materiality scrapes has also substantially increased. In 2014, 70% of the reviewed transactions included a materiality scrape, as compared to 28% in 2012 and 49% in 2010.
  • 18 months continues to be the most commonly used survival period for general representations and warranties (36% of transactions in 2014), but by a smaller margin than in previous studies.
  • The seller representations most often excluded from application of the basket (capitalization, due authority, due organization, taxes, fraud) were excluded even more frequently than in previous years.
  • While the percentage of transactions including an earnout remained almost exactly the same as in 2012, buyer-favorable earnout provisions have become more common. Only 3% of transactions that included earnouts in the current study included a covenant requiring the buyer to operate the business consistent with past practice (down from 27% in 2010 and 18% in 2012). Similarly, no deals in the current study included a covenant requiring the buyer to run the business to maximize the seller’s earnout, whereas 8% of deals with earnouts included such a covenant in 2010 and 6% did in 2012.
  • The use of legal opinions in private target transactions continues to decline. In 2014, 11% of transactions required a legal opinion, down from 19% of transactions in 2012 and 27% in 2010.

For more information on this study, contact any member of the Gray Plant Mooty Mergers & Acquisitions team.

Alyssa Hirschfeld serves as a principal in the Mergers & Acquisitions team at Gray Plant Mooty. She is a member of the working group that produces the Mergers & Acquisitions Private Target Deal Points Study.

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