A Special Report Presented by Bloomberg Law and SRS Acquiom
by Sean Arend and Andrew Hubley
Over the past few years, several practitioners and banks have observed that the mergers and acquisitions (M&A) market in the United States favors the seller.1
To evaluate how buyers are reacting to this trend, we analyzed deal terms contained in 795 private-target M&A agreements concluded between 2013 and 2016 and included in the SRS Acquiom “MarketStandard” database.2 Additionally, we analyzed data concerning approximately 42,600 private-target M&A deals contained in the Bloomberg Law® Deal Analytics database to understand general market trends and provide context for our review of the substantive deal terms.3 Our main goal was to determine how certain terms in M&A agreements have shifted in recent periods and to offer context for why the changes may have been occurring.
Our analysis identified shifts in a number of deal terms to a more seller-friendly formulation. These shifts coincided with market trends that have generally favored sellers, suggesting that sellers exercised greater leverage in negotiations. However, our analysis also showed that buyers are devising creative provisions that limit or curb the effects of seller-friendly terms.
In this article, we first discuss factors that may have contributed to the rise of more seller-friendly terms. We then review five M&A terms that have become more seller-friendly during the past several years, and we identify the tactics buyers have used to limit or curb the increasingly seller-friendly terms.
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1 See William Blair, Merger Tracker – Q1 2017 (noting that sellers are seeking to take advantage of the seller-friendly M&A market by accelerating the sale process); see also, Oliver Brahmst & Carolyn J. Vardi, Private Equity Adapts in a Seller’s Market, White & Case Jul. 31, 2017 (noting that “PE firms are under pressure to deploy capital in a market that has favored sellers in recent years”); Gibson Dunn, M&A Report – How Representations and Warranties Insurance is Transforming Risk Allocation in M&A transactions, Nov. 27, 2017 (stating that buyers are relying on rep & warranty insurance more frequently due to, among other things, “an increasingly competitive, sellerfriendly deal climate . . .”).
2 SRS Acquiom maintains a proprietary database of M&A agreements, most of which are not publicly available. The database includes statistics on drafting points for selected provisions in the agreements. As part of our analysis, we analyzed drafting trends in the 795 M&A agreements included in the SRS Acquiom database for deals occurring between 2013 and 2016.
3 We reviewed data concerning the approximately 42,561 M&A deals announced between January 2013 and October 2017, valued at less than $1 billion U.S., involving a U.S. private target company and contained in the Bloomberg Law Deal Analytics database.