The data analyzed in Seyfarth's most recent annual Survey
suggests that the M&A environment in 2015 continued to have a
favorable impact on key deal terms for sellers. Based on a sampling
of deals from the first quarter of 2016, we have seen these seller
favorable trends carry over into 2016.
The 2015 data revealed an increase in the use of escrow periods
of 12 months or less, a decrease in median escrow amounts and a
higher percentage of deals employing an indemnity cap of 10% or
less, in each case, as compared to the two prior years.
Buyers continue to attempt to differentiate themselves and
present a more compelling bid for acquisition targets or their
assets by taking on more risk in their acquisition agreements and
offering more aggressive contractual terms to sellers. Buyers are
also increasingly purchasing representation and warranty insurance
in an effort to make their acquisition proposal even more
attractive to a seller by limiting potential post-closing liability
of the seller.
While the Survey summarizes a variety of deal terms and trends
in middle-market M&A transactions, below are several key
Indemnity Escrow Amounts Are
Shrinking - The median indemnity escrow amount in 2015 was
6% of the purchase price compared to 7.41% in 2014 and 8.81% in
2013. In 2015, approximately 76% of the deals surveyed had an
indemnity escrow amount of less than 10% of the purchase price
compared to 59% in 2014 and 48% in 2013.
Escrow Periods of 12 Months
or Less Continue to Increase - The percentage of deals
with an indemnity escrow period of 12 months or less increased to
over 46% in 2015 compared to approximately 40% in 2014 and 34% in
Most Transactions Continue to
Have Representation and Warranty Survival Periods Between 12 to 18
Months - Approximately 80% of deals surveyed had survival
periods for general representations and warranties from 12 to 18
months, representing a slight increase when compared to 78% in
Median Indemnity Cap Has
Remained Unchanged Since 2013 - The median indemnity cap
remained steady in 2015 at 10% as compared to prior years.
An increasingly important responsibility of the general counsel is to advise the corporation, and its officers and directors, on the application and extent of insurance/advancement and indemnification protections.
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