ARTICLE
10 March 2016

Seller-Friendly Trends In M&A Transactions

KL
Herbert Smith Freehills Kramer LLP

Contributor

Herbert Smith Freehills Kramer is a world-leading global law firm, where our ambition is to help you achieve your goals. Exceptional client service and the pursuit of excellence are at our core. We invest in and care about our client relationships, which is why so many are longstanding. We enjoy breaking new ground, as we have for over 170 years. As a fully integrated transatlantic and transpacific firm, we are where you need us to be. Our footprint is extensive and committed across the world’s largest markets, key financial centres and major growth hubs. At our best tackling complexity and navigating change, we work alongside you on demanding litigation, exacting regulatory work and complex public and private market transactions. We are recognised as leading in these areas. We are immersed in the sectors and challenges that impact you. We are recognised as standing apart in energy, infrastructure and resources. And we’re focused on areas of growth that affect every business across the world.
Kramer Levin recently completed its internal study of acquisition agreements for private target M&A transactions, and compared this data with the 2015 ABA Private Targets Mergers & Acquisitions Deal Points Study.
United States Corporate/Commercial Law

Kramer Levin recently completed its internal study of acquisition agreements for private target M&A transactions, and compared this data with the 2015 American Bar Association ("ABA") Private Targets Mergers & Acquisitions Deal Points Study and Kramer Levin's 2013 internal deal points study of private target acquisition agreements.

The results of these studies reveal a strong and continued shift toward seller-friendly terms in middle market M&A transactions. The shift is driven by robust competition in auctions, a continuing increase in sophistication and market awareness, and explosive growth in the use of representations and warranties ("R&W") insurance policies.

The most significant shifts in deal terms relate to the survival period for representations and warranties, and the related indemnity cap. The incidence of acquisition agreements in which the representations and warranties do not survive closing has grown dramatically. Such transactions accounted for only 1% of deals examined in Kramer Levin's 2013 study, but grew to 6% in the 2015 ABA study and 13% in Kramer Levin's current study. Notably, 65% of the transactions included in Kramer Levin's current study included the use of an R&W policy. Additionally, a majority of deals contain an indemnity cap of 10% or less of the total transaction value, with a significant number of deals trending toward a cap of between 5% and 7.5%, and the average is substantially lower when R&W policies are used.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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