Many parties wonder how market-wide deal terms data compare to their upcoming strategic M&A transaction. One way to focus on the most relevant slice of the market is using Buyer Power Ratio to home in on deals that are similarly situated by one aspect of party negotiating leverage.
Developed by SRS Acquiom and the M&A Committee of the ABA's Business Law Section, Buyer Power Ratio compares the buyer's market capitalization to the size of the transaction–the purchase price (including escrowed amounts, but not including potential earnouts).
#1 As Buyer Power Ratio increases, a larger percentage of 2018/2019 deals include either a "10b-5" representation, a "full disclosure" representation, or both.
#2 As Buyer Power Ratio rises, the materiality standard applicable to the accuracy of seller representations is likelier to be "in all material aspects" rather than MAE.
#3 When Buyer Power Ratio is high, it is much less likely that recoverable losses will be reduced by tax benefits.
Source: 2018–2019 MarketStandard deals.