Europe continues to be a sellers' market. All countries across Europe now apply “seller-friendly” risk allocation techniques, while the US continues to firmly favour the buyer.
These conclusions were published by CMS today in the 12th edition of its annual European M&A Study, a multi-year analysis of the key legal provisions within M&A agreements. The study is the most comprehensive of its kind and is based on a proprietary database comprising more than 4,600 deals.
In identifying the primary deal drivers for transactions, CMS revealed that almost half of deals represented buyers entering a new market (46%) or acquisitions of know-how or acqui-hire transactions (41%). The proportion of these transactions both increased since 2018 (32% and 23% respectively). One fifth of the deals represented the acquisition of a competitor.
Stefan Brunnschweiler, Head of the CMS Corporate/M&A Group, said: “We are seeing demand for deal certainty in the unpredictable macroeconomic context, greater use of clever risk allocation strategies, as well as new cutting-edge technologies benefitting the industry.
The M&A Study 2020 will be a useful guide for those considering transactions in a more and more challenging investment climate.”
Key findings for 2019 include:
Upward trend of legal technology tools – AI and document automation were used in numerous of the reviewed transactions, often leading to significant cost savings.
Rise in popularity of Warranty & Indemnity (W&I) insurance – up by 2% to 19% of all deals but used in almost half of deals valued over EUR 100m.
Gradual decline of purchase price adjustments (PPAs) – in 45% of all deals, up one-percentage point from the previous year, but significantly behind the average level for the previous three years.
Upward trend of locked box structures continues – in 56% of deals with no PPA, highlighting parties’ wish for as much certainty as possible.
de minimis and basket provisions becoming the market norm – now applying in majority (73% and 66% respectively) of transactions, most likely reflecting the increasing use of W&I insurance.
Liability caps determined by deal size and W&I insurance – overall cap in smaller deals most likely to be full purchase price, compared to only 10-25% for larger deals. Additionally, almost half (45%) of W&I deals have caps of less than 10% of the purchase price, compared to only 10% of non-W&I deals.