New SRS M&A Deal Terms Study Shows Sellers with Proven Track Records Garner Increasingly Favorable Terms
In a year defined by low interest rates, buyers continued to look to spend cash reserves on mature acquisition targets. SRS | Shareholder Representative Services, the post-closing expert for private-company mergers and acquisitions, today announced the release of the 2012 SRS M&A Deal Terms Study, which analyzes deal terms, investor returns and year-over-year trends in M&A.
The new study, which reports on over 200 data points and builds on data from prior SRS studies, covers 342 acquisitions on which SRS served as the shareholder representative, including mergers, asset purchases and stock purchases. In aggregate, these deals represent $55.3 billion in stated deal value with $42.7B paid at closing, $4.9B held in escrow and $7.7B in defined earn-out consideration. For the first time, the study analyzes equity investment data and termination fees, and includes more detailed data on carve-outs, indemnification caps and survival periods.
Sellers with positive EBITDA at exit increased from 28% of the sample in 2011 to 38% in 2012 with companies taking a median of 7 years to exit. This may indicate that sellers are finding ways to reduce burn rates to achieve profitability prior to exit, giving buyers a more stable and mature pool of potential targets.
Increased maturity also seems to mitigate potential valuation gaps in uncertain economic times, and earn-outs continue to appear on the minority of deals outside of the life sciences sector. When an earn-out is used, parties are incorporating clearer, binary measurements, such as product launch and unit sales, rather than earnings metrics that can be more problematic and lead to disputes.
“Many key deal benchmarks have varied widely over the past several years, due to challenging macro-economic conditions,” said Mark Bettencourt, Partner at Goodwin Procter. “This latest SRS survey, which provides important perspective on a breadth of deals across the market, indicates that in some areas, such as high-order indemnification terms including allocation of post-closing liability and related risk in private M&A transactions, deal terms are beginning to stabilize.”
Additional key findings from the study include:
- Median deal size rose slightly to $75 million in 2012 from $70 million in 2011, but deals $50 million or less grew to 42% of deals in 2012, up from 33% in 2011.
- Size of management carve-outs as a percentage of overall transaction value is down from 2011.
- Data shows more seller favorable terms on issues such as an increase in available offsets against buyer indemnification claim amounts and an increase in deals that require that claims exceed a minimum threshold.
- Mandatory alternative dispute resolution, such as mediation and arbitration, has steadily declined, down to 26% of deals in 2012 from 41% in 2010.
“Buyers continue to put cash to work on low-risk targets, and attractive sellers are in a good position to exit as usual,” said Sean Arend, Executive Director, Corporate Development at Shareholder Representative Services. “We may be in store for an uptick in M&A in 2013, as a result of a backlog of deals that cautious buyers put off this year.”
The full 2012 SRS M&A Deal Terms Study is available on the SRS web site, www.shareholderrep.com/study.
SRS | Shareholder Representative Services is the global expert in professionally managing the post-closing process to safeguard the selling shareholders' interests in private company M&A transactions. As the shareholder representative, SRS manages all post-closing matters, including working capital and other purchase price adjustments, tax reviews, earn-outs, the handling of claims, disputes and litigation, communications with acquirers and selling shareholders, and management and distribution of escrow and expense funds.
SRS has a senior-level team of more than 35 attorneys, financial professionals, and operations and systems experts and the most sophisticated operational, tracking and reporting systems ever used by a shareholder representative. On deals comprising $50+ billion in aggregate deal value, SRS has represented more than 400 venture capital and private equity firms and over 40,000 shareholders in 44 countries. No one has as much knowledge and experience in serving as a shareholder representative and navigating the issues that arise post-closing as SRS. For more information visit www.shareholderrep.com.
Kelly Holman, 212-209-3844, Ext. 1012