Seller-Favorable Deal Environment Persists According to Seyfarth’s Middle-Market M&A Survey

Leading law firm Seyfarth Shaw LLP has published the 5th edition of its Middle-Market M&A SurveyBook of Key M&A Deal Terms (the “Survey”). The Survey analyzes over 120 middle-market (<$1 billion) publicly available private target acquisition agreements signed in 2017.

 

The Survey focuses on key deal terms comprising the “indemnity package” included in almost all private target acquisition agreements to address a seller’s potential post-closing liability to a buyer, and set the parameters of a buyer’s ability to claw back purchase price from a seller.

 

The data analyzed in this Survey suggests that, similar to the trend of recent years, the environment for private target middle-market M&A continues to be seller friendly. The purchase of representation and warranty (“R&W”) insurance continues to be a powerful tool used by buyers to make their acquisition proposal more attractive, and this year’s data indicated a significant increase in deals using R&W insurance. Of course, the terms of the typical indemnity package are greatly impacted when R&W insurance is utilized. For example, the indemnity escrow amount and indemnity cap size are typically drastically lower in transactions using R&W insurance as compared to transactions that do not use such insurance. Accordingly, Seyfarth’s Survey highlights the impact of R&W insurance on certain deal terms and separately addresses the results for deals not utilizing R&W insurance.

 

In deals not using R&W insurance, this year’s Survey showed consistency with prior years for a number of deal terms with the general representation and warranty survival periods holding steady in the 12 -18 month range, continued high usage of true deductible indemnity baskets, and a median indemnity cap size of 10% of purchase price. To view Seyfarth’s 2018 Middle-Market M&A SurveyBook, please visit here.