Client Exclusive: Hirschler M&A Team Offers Advance Preview of 2021 ABA Private Target Deal Points Study

01.04.2022

Hirschler is pleased to provide its valued clients with advance highlights from the 2021 American Bar Association Private Target Deal Points Study. Released exclusively to the members of the ABA M&A Committee on December 30, the latest study sheds new light on the initial impact COVID-19 is having on deal points in M&A transactions involving privately-held targets.

The latest biannual Deal Points Study offers a robust, 15-month analysis of acquisitions of privately-held targets by publicly-held buyers. The study draws data from 123 middle market transactions executed or closed in 2020 or the first quarter of 2021. Transactions included in the study range from $30 million to $750 million and the average transaction value is $233.6 million.

Notable Highlights

• The use of representations and warranties (R&W) insurance is continuing to rise: 65% of deals in the 2021 study as compared to 52% of deals in the 2019 study and 29% in the 2017 study.
• The number of “public company” styled deals—deals in which the sellers did not have traditional indemnification liability to the buyer following the closing—more than doubled to 33% of deals in the 2021 study as compared to 14% of deals in the 2019 study.
• Earnouts were down from 27% in the 2019 study to 20% in the 2021 study.
• Caps on a seller’s indemnification obligations continue to fall. The average across all deals is 6.08% of total transaction value—9.07% for deals without R&W insurance and 3.81% for deals with R&W insurance. 
• Average indemnification escrows and holdbacks continue to fall (now at 3.5% of total transaction value down from 5.57% in the 2019 study and 6.66% in the 2017 study).
• Adjustment escrows were increasingly a buyer’s sole source of recovery for a post-closing purchase price adjustment—39% in the 2021 study as compared to 26% in the 2019 study.

New Deal Terms

• The study looked at the impact of COVID-19 on purchase agreements entered into after March 11, 2020 and found:
  • “COVID-19” or “pandemic” was listed as a carveout from the definition of “material adverse effect” (MAE) in 67% of deals, meaning in those deals, the impact of COVID-19 would not be taken into account to determine if an MAE had occurred.
  • 32% of deals had a specific COVID-19 representation.
  • A small number of deals included standalone indemnification for Paycheck Protection Program loans (3%) and COVID-19 related matters (1%).

• The study found that 20% of deals defined the consequences resulting from a buyer’s late delivery of a post-closing purchase price adjustment statement, a deal point that may become more important in light of the Delaware court’s February 2021 decision in Schillinger Genetics, Inc.
• Termination fees, payable by either buyer or seller, were also highlighted in this year’s study, which reported that 22% of deals included some sort of termination fee.

To learn more about the finding of the 2021 study, contact a member of the Hirschler M&A practice group.