M&A Deal Terms & Trends Pre- & Post-COVID-19

Market Situation

Steady increases until 2020

• Shorter overall investment periods
• More capital-raise events
• 67% increase in number of deals per year over the last decade
• 73% aggregate deal-value increase
• Increase in pro-seller terms followed these curves

Private-Target M&A Deal Counts and Volume

COVID-19: Deal terms are changing, and some impacts may last

Material Adverse Effects

• Pandemic carveouts are the norm with occasional carveouts for law compliance

Interim Operating Covenants / Reps and Warranties Disclosures

• Qualifiers for “ordinary course of business” and employment status

Purchase Price Adjustments and PPP Loans

• New guidance regarding repayment and escrow requirements for PPP loans

Earnouts

• Increase in use of EBITDA or earnings measurement versus revenue

Protect Your Negotiations & Deals

Taxes

• Opportunities to negotiate refunds (CARES Act)
• Tax audit timing is longer, resulting in delayed escrow releases

Earnout Cases

• Online clothing company: Earnout provisions require open stores and pre-COVID operations
• Pharmaceuticals: Clinical trials delayed beyond milestone deadline

Holdbacks

• Buyer’s ability to pay depends on available cash and solvency
• Solvency impacts how claims are negotiated and resolved

Stock Deals

• Stock escrows fluctuate quickly in value, further pressurizing decisions
• Similar sense of urgency where buyer stock (in escrow or holdback) is declining in value