Market Trends: What You Need to Know - As shown in the American Bar Association's Private Target Mergers and Acquisitions Deal Point Studies. Originally.
Market Trends: What You Need to Know As shown in the American Bar Association's Private Target Mergers and Acquisitions Deal Point Studies. Originally Published in.
Market Trends: What You Need to Know
As shown in the American Bar Association s Private Target Mergers and Acquisitions Deal Point Studies:
Over the eight ABA studies (2005-2019), indemnity caps have declined as a percentage of transaction value (whether as mean or median). This decline has been fairly consistent over the period of the ABA studies, despite an uptick in the mean of indemnity caps following the financial recession of 2008 that was almost certainly the result of the private company M&A market being “buyer friendly” during this time period.
The 2017 and 2019 ABA studies each show that indemnity caps are lower in reported deals where representations and warranties insurance are referenced in the deal documents.
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:
The use of separate escrows for purchase price adjustments has been increasing on a steady basis since 2007.
Separate purchase price adjustment escrows are now becoming the majority approach, and were present in 51% of the reported deals in the 2019 study.
Previously, less than a quarter of reported deals included a separate purchase price adjustment escrow.
Introduction
In mergers and acquisitions (M&A) transactions, the definitive purchase agreement, whether asset purchase agreement, stock purchase agreement, or merger agreement, typically contains provisions for post-closing purchase price adjustments. Generally, these adjustments are intended to reconcile changes in the target s financial condition as of the transaction s closing, usually measured against a prior date or against representative or average historical financial metrics. In