Seyfarth Releases 2023/2024 Middle Market M&A Survey

(September 30, 2024) - Seyfarth Shaw LLP has released the 10^th edition of its Middle Market M&A SurveyBook (“2023/2024 Survey”). This year’s survey again analyzes key transaction terms from more than 130 middle market private target acquisition agreements signed in 2023 and the first half of 2024.

The annual survey is intended to serve as a guide to buyers, sellers, and deal professionals on “what’s market” when negotiating these terms in private target acquisition agreements.

The 2023/2024 Survey focuses on key deal terms, including those comprising the “indemnity package” included in most private target acquisition agreements to address a seller’s potential post-closing liability to a buyer and to set the parameters of a buyer’s ability to claw back purchase price from a seller.

“Each deal, of course, has unique facts and circumstances that affect the negotiation of the acquisition agreement, including the relative leverage of the parties,” said Andrew Lucano, co-chair of Seyfarth’s Mergers & Acquisitions practice. “It is nonetheless helpful when negotiating an acquisition agreement to have a strong understanding of where the terms of your ‘indemnity package’ fall in the current market spectrum.”

Given the impact of the use of representation and warranty (“R&W”) insurance in private middle market M&A transactions, this year’s survey continues to track data from deals that included R&W insurance separately from deals where no R&W insurance was utilized.

The terms covered in Seyfarth’s Middle Market M&A SurveyBook include:

Indemnity Escrow Amount
Indemnity Escrow Period
Representation & Warranty General Survival Period
Carve Outs to General Survival Period
Indemnity Basket
Indemnity Cap
Fraud
Choice of Governing Law
Bring Down Standards

Notable findings from Seyfarth’s 2023/2024 Survey include:

The median indemnity escrow amount for the non-insured deals surveyed was approximately 8% of the purchase price. For insured deals, it was 1% of the purchase price. Both are consistent with last year’s survey results.
Approximately 57% of the transactions reviewed for the 2023/2024 Survey included R&W insurance, just below 58% in 2022/2023. Buyers are consistently using R&W insurance in acquisition proposals to make their bids more competitive and attractive to sellers.
Approximately 80% of non-insured deals and 82% of insured deals in 2023/2024 had an indemnity escrow period of 12-18 months. Both are consistent with 2022/23.
For deals in 2023/2024 utilizing R&W insurance, there was a decrease in “no survival” deals for the first time in several years.
The median general survival period for non-insured deals surveyed was 16.5 months, consistent with 2022/2023. For insured deals, it was 12 months, a slight decrease from the 14 months in 2022/23.
The percentage of non-insured deals surveyed that carved out representations and warranties regarding no conflicts was approximately 59% in 2023/2024, an increase from approximately 45% in 2022/2023. Similarly, the percentage of insured deals surveyed that carved out representations and warranties regarding no conflicts was approximately 64% in 2023/2024, an increase from approximately 50% in 2022/2023
Both insured and non-insured deals surveyed showed increased usage of tipping baskets (approximately 26% and 30%, respectively) as opposed to true deductible baskets (approximately 74% and 70%, respectively) as compared to 2022/2023 (approximately 94% and 83%, respectively).
Approximately 89% of non-insured deals surveyed in 2023/2024 included fraud exceptions to certain indemnity provisions of the agreement, compared to approximately 84% in 2022/2023.
All insured deals surveyed included fraud exceptions to certain indemnity provisions of the agreement, consistent with 2022/2023 findings.
Of the deals surveyed, 76% used a “Material Adverse Effect” qualifier for the representations and warranties bring down closing condition as compared to 81% in 2022/2023.

To view Seyfarth’s 2023/24 Middle Market M&A SurveyBook, please visit here.

Seyfarth’s Mergers & Acquisitions practice provides domestic and cross-border advice on a wide range of complex M&A and other corporate transactions and applies a constructive and proven approach to a broad range of clients, from public and privately held companies to private equity firms and family-owned businesses, with a sweet spot in middle market transactions.

About Seyfarth

With more than 900 lawyers across 18 offices, Seyfarth Shaw LLP provides top-tier advisory, litigation, and transactional legal services to clients worldwide.