The American Bar Association (ABA) recently released its 2017 Private Target Mergers & Acquisitions Deal Points Study. The Study is the ABA’s latest installment to a series of studies analyzing commonly negotiated deal points. The Study covers publicly available acquisition agreements of private targets by public companies for transactions for which definitive agreements were executed and/or completed in 2016 and the first half of 2017. The final sample of 139 acquisition agreements analyzed in the Study reflected transactions ranging in value from $30 million to $500 million, with a median transaction value of approximately $150 million. Technology and healthcare were the top two industries represented in the Study with approximately 24% and 22% of the Study sample, respectively.
The Study covers several new data points, e.g., whether a non-reliance provision includes a fraud carveout (it does, in 17% of agreements where an express non-reliance provision is included); whether survival provisions cover breaches of representations and warranties (99%), breaches of covenants (25%) or all indemnified matters (5%); and whether the attorney-client privilege is limited to deal-related communications. Additionally, for the first time, the Study includes data points with respect to Representations and Warranties Insurance (RWI), to the extent addressed in the applicable acquisition agreements. Acquisition agreements that included references to RWI represented 29% of the Study sample.
The Study highlights several trends. For example, the Study reflects:
- A significant increase in the requirement that the target must notify the buyer of breaches of representations, warranties and covenants (72% of deals in 2016-2017 compared to 60% of deals in 2014).
- A decrease in the express exclusion of consequential damages (39% of deals in 2016-2017 compared to 49% of deals in 2014).
- A significant increase in the use of “double materiality” scrapes (85% of deals in 2016-2017 compared to 70% of deals in 2014).
- An increase in indemnification obligations related to “alleged” breaches (37% of deals in 2016-2017 as compared to 19% of deals in 2014).
- A significant increase in intentional misrepresentation as a carveout to the exclusive remedy provision (43% of deals in 2016-2017 compared to 33% of deals in 2014).
- A trend toward defining fraud or limiting it to “actual fraud” or intentional fraud (fraud was undefined in 63% of transactions in 2016-2017 with indemnification as exclusive remedy provisions as compared to 74% of deals in 2014).
- A significant increase in escrows/holdbacks of 3% and less of transaction value (32% of deals in 2016-2017 compared to 11% of deals in 2014); mean and median escrows decreased from 9.14% and 7.5% for deals in 2014 to 7.00% and 6.66% for deals in 2016-2017, respectively.
- A significant increase in the requirement that buyer mitigate losses (57% of deals in 2016-2017 compared to 40% of deals in 2014).
The results of the 2017 Study offer valuable information for dealmakers. A full copy of the Study may be obtained from the ABA or by contacting one of the Bass, Berry & Sims co-authors of the Study.