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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.

Media Contact

Luis F. Ruiz

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