Firm News

Mar 17, 2015

Middle-Market M&A Survey Suggests Seller-Favorable Indemnity Environment

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NEW YORK (March 17, 2015) – Leading law firm Seyfarth Shaw LLP has published the 2015 edition of its Middle-Market M&A SurveyBook of Key Deal Terms (the “SurveyBook”). The SurveyBook analyzes nearly 300 publicly available private target acquisition agreements signed in 2014 with a purchase price between $25 million and $1 billion.
 
The SurveyBook focuses on the key deal terms comprising the “indemnity package” often included in private target acquisition agreements to address the issue of a seller’s potential post-closing liability to a buyer and defining the scope by which the purchase price paid to a seller may be potentially clawed back by a buyer.
 
The data analyzed suggests that the current M&A environment is having a favorable impact on these key deal terms from a seller’s perspective. An improving economy, increasing corporate profits, cheap financing and record cash reserves have created a robust deal environment with fierce competition among potential buyers to acquire quality assets. 
 
One way buyers have been attempting to differentiate themselves and present a more compelling bid for acquisition targets or their assets is by taking on more risk in their acquisition agreements and offering more aggressive contractual terms to sellers. An increasing trend for buyers is to purchase representation and warranty insurance to supplement a seller’s indemnification obligations in an effort to make their acquisition proposal even more attractive to a seller. These trends have carried over into the first quarter of 2015 and are expected to continue throughout the upcoming year.
 
While the SurveyBook summarizes a variety of deal terms and trends in the M&A market, below are several key takeaways:
  • Indemnity Escrow Period - While the median indemnity escrow period remained steady at 15 months, the percentage of deals with an indemnity escrow period of less than 12 months more than doubled in 2014 to 9.38%.
  • Indemnity Escrow Amount - The median indemnity escrow amount in 2014 was 7.41% of the purchase price compared to 8.81% in 2013. In 2014, approximately 59% of the deals surveyed had an indemnity escrow amount of less than 10% compared to 48% in 2013.
  • Representation and Warranty Survival Periods - Trended downward in 2014. While most transactions continue to have a survival period between 12 and 18 months, 2014 saw an increase in the percentage of transactions with a representation and warranty survival period of less than 12 months—jumping from 6.04% in 2013 to 14.34% in 2014. 
  • Indemnity Basket Size - 2014 saw a slight increase in the median basket size, increasing to 0.76% of the purchase price compared to 0.72% in 2013.
  • Indemnity Cap Size - The median indemnity cap remained steady in 2014 at 10%.
To view the 2015 M&A SurveyBook, please visit here.
 
About Seyfarth Shaw
 
Seyfarth Shaw has more than 800 attorneys and provides a broad range of legal services in the areas of labor and employment, employee benefits, litigation, corporate and real estate. With offices in Atlanta, Boston, Chicago, Houston, London, Los Angeles, Melbourne, New York, Sacramento, San Francisco, Shanghai, Sydney and Washington, D.C., Seyfarth’s clients include over 300 of the Fortune 500 companies and reflect virtually every industry and segment of the economy. A recognized leader in delivering value and innovation for legal services, Seyfarth’s acclaimed SeyfarthLean client service model has earned numerous accolades from a variety of highly respected third parties, including industry associations, consulting firms and media. For more information, please visit www.seyfarth.com.
 
Contacts:
 
Brian Kiefer, Director of Public Relations
(312) 460-6401, bkiefer@seyfarth.com
 
Martin Grego, Public Relations Manage
(312) 460-6659, mgrego@seyfarth.com