Market Trends: What You Need to Know
As shown in the American Bar Association s Private Target Mergers and Acquisitions Deal Point Studies:
Since 2011, the use of after-tax indemnity limitations has steadily decreased, appearing in 32% of deals reviewed in the 2019 study. Notwithstanding potentially limited economic benefits of an after-tax indemnity limitation, these provisions are still seen, though decreasingly so, in M&A transactions.
After-tax indemnity limitations grew in prevalence across the first three ABA studies (2007-2011), to a peak of 53% for deals reported in the 2011 study. However, 2011 was the first and only year that inclusion of the limitations represented the majority position.
Market Trends: What You Need to Know
As shown in the American Bar Association s Private Target Mergers and Acquisitions Deal Point Studies:
Insurance reduction provisions were included in 90% of the merger and acquisition (“M&A”) deals reported in the 2019 study.
Over the past 12 or so years covered by the seven ABA studies looking at the topic, the usage of insurance reduction provisions has increased from 63% to 90% an increase of almost 50%, and insurance reduction provisions have become a “given” in M&A purchase agreements.
Comparatively, the previous six studies noted the inclusion of insurance reduction provisions in 88%, 87%, 81%, 85%, 68%, and 63% of reported deals, respectively.
Market Trends: What You Need to Know
As shown in the American Bar Association s Private Target Mergers and Acquisitions Deal Point Studies:
Only 2% to 9% of the merger and acquisition purchase agreements covered by the studies expressly included consequential damages within the scope of indemnified losses
26% to 39% of the purchase agreements expressly excluded consequential damages within the scope of indemnified losses
39% to 65% of the purchase agreements were silent on the issue
Introduction
In M&A transactions, the definitive purchase agreement, whether asset purchase agreement, stock purchase agreement, or merger agreement, typically contains representations and warranties and related indemnification covenants. Buyers and sellers often negotiate the scope and types of damages subject to indemnification under the purchase agreement, including whether consequential damages that the buyer may suffer as a result of the seller s breach should be included in, or excluded from,