Analysis of 735 deals in the 2016 SRS Acquiom M&A Deal Terms Study also reveals key changes to contract terms following a Delaware Court decision
San Francisco, CA. April 12, 2016 —The number of financing rounds for companies seeking to raise capital dropped in 2015, according to the most recent SRS Acquiom M&A Deal Terms Study, which looked at more than 700 transactions valued at $137 billion between 2012 and 2015. Companies, however, were still able to attract the same amount of investment as in past years–a median of $24 million.
“Because investors are managing record amounts of capital, they might be looking to place larger bets,” said Paul Koenig, CEO of SRS Acquiom. “Companies may also be seeking to raise rounds of financing large enough to outlast what continues to be a somewhat volatile capital market.”
Another key finding of the study showed that it’s taking longer for new companies to get to an exit. Since 2012, the study found, the median time from when a company launches until it is acquired increased from seven to nine years.
SRS Acquiom’s fifth M&A Deal Terms Study pulled data from 735 deals that closed between 2012 and 2015, with an aggregate value of $137 billion. Notable transactions within the study include Google’s acquisition of Nest in 2014 for $3.2 billion, the purchase of Par Pharmaceutical Holdings by Endo International, and the 2014 purchase of Twitch Interactive by Amazon for $970 million.
The study also found possible rising concern about indemnification obligations in the wake of the recent Cigna v. Audax decision by the Delaware Chancery Court. The court ruled that allowing purchasers an indefinite amount of time after closing to potentially claw back all of the money paid to shareholders in a merger was a violation of Delaware law. Data in the study suggested that, as a result of the decision, “indefinite” survival periods in transactions decreased from 28% to 17% since 2014.
“In light of the Cigna decision, the M&A community is still trying to determine best practices in drafting deal terms,” said Sean Arend, Managing Director, Corporate Development and General Counsel of SRS Acquiom. “So far,” he noted, “more transactions have been structured to shorten the time buyers have to get money back, rather than limiting how much of the purchase price they can access.”
Among over 200 deal terms published, other key results of the study include:
- Transaction values ranged from more than $750 million in 2% of the deals to $25 million or less in 23% of the deals.
- The average return on equity for 2015 was 6.9 times the amount invested; the median was 3.9 times.
- The median number of years from founding to exit increased from seven to nine years since 2012.
- Transactions involving stock as all or part of the merger consideration have increased from 15% to 25% since 2012.
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Dawn Robert, Associate Director, Marketing and Communications