Seyfarth Releases 2020 Middle Market M&A Survey

(April 7, 2020) -- Seyfarth has published the 7th edition of its Middle Market M&A SurveyBook (the “Survey”). The Survey analyzes key transaction terms from more than 100 middle market private target acquisition agreements signed in 2019.

The Survey focuses on key deal terms, including those comprising the “indemnity package” included in almost all private target acquisition agreements to address a seller’s potential post-closing liability to a buyer and to set the parameters of a buyer’s ability to claw back purchase price from a seller. Given the substantial and continued growth in the use of representation and warranty (“R&W”) insurance in private middle market M&A transactions, this year’s Survey also tracks data from deals that included R&W insurance separately from deals where no R&W insurance was utilized. Key highlights include:

• Approximately 55% of the transactions reviewed for the Survey included R&W insurance, compared to approximately 40% of the transactions in 2018.
• Similar to 2018, in 2019 there was a growing number of “no survival” private target acquisitions, in which the buyer’s only recourse for breaches of representations and warranties was to the R&W insurance policy, or to an escrow related to the amount of the policy deductible, and then to the R&W insurance policy.

Again this year, the Survey also considers the number of private target acquisition agreements that included “fraud” exceptions to certain limitations on buyers’ indemnification rights and remedies, such as caps and baskets, and whether and how “fraud” was defined across those transactions.

According to the Survey, 2019 presented a slight drop in the number, and the aggregate value, of US deals compared to 2018. However, 2019 was historically the third best year in US deal making in the last two decades. Despite a prolonged period of uncertainty related to the UK’s Brexit plans, concerns about US interest rates, US-China trade tensions, and a growing consensus that after a bull run, markets and the economy were approaching the top of the cycle, the sustained high level of deal activity continued through 2019.

These concerns, the characteristic ambiguity around the US presidential election and now the unprecedented COVID-19 pandemic (“COVID-19”) and its cataclysmic impact on global and US markets, will undoubtedly have at least a short-term negative impact on M&A activity in 2020, according to the Survey’s authors. Prior to COVID-19, dealmakers were cautiously optimistic that steady economic growth, continued low interest rates, and record levels of capital would sustain the M&A momentum through 2020, but the impact of COVID-19 has dampened any optimistic mood around M&A activity in the short-term and possibly longer.

According to the Survey’s authors, the length and depth of the long-term economic impact of COVID-19 on the US and global economies is highly uncertain and the full scale of the global supply chain disruptions is unknown. The initial forecasts of many economists expect a significant contraction in the US economy through at least the second quarter of 2020, with the hope of a bounce back in the latter part of the year. This sentiment ties to the optimism by some that dealmakers are merely pausing transactions during the current period of uncertainty.

To view Seyfarth’s 2020 Middle Market M&A SurveyBook, please visit here.

About Seyfarth
With more than 900 lawyers across 16 offices, Seyfarth Shaw LLP provides advisory, litigation and transactional legal services to clients worldwide.

Contacts:

Martin Grego, Senior Public Relations Manager, (312) 460-6659, mgrego@seyfarth.com