ADVANCE COPY (LIMITED PREVIEW)
Private Target Mergers & Acquisitions
Deal Points Study
(Including Transactions Completed in 2012)
A Project of the Mergers & Acquisitions Market Trends Subcommittee,
Mergers & Acquisitions Committee of the American Bar Association Business Law Section
Private Target M&A Deal Points Study
(Including Transactions Completed in 2012)
A Project of the M&A Market Trends Subcommittee,
Mergers & Acquisitions Committee
of the American Bar Association’s Business Law Section
Subcommittee Chair
Hal J. Leibowitz, WilmerHale
Past Subcommittee Chairs
Wilson Chu, K&L Gates LLP (Founding Subcommittee Chair)
Larry Glasgow, Gardere Wynne Sewell LLP (Founding Subcommittee Chair)
Keith A. Flaum, Weil, Gotshal & Manges
James R. Griffin, Weil, Gotshal & Manges
Jessica C. Pearlman, K&L Gates LLP
Chair, Mergers & Acquisitions Committee
Mark A. Morton, Potter Anderson Corroon LLP
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 2
ADVANCE COPY release #1: 30Dec13
Private Target Study Working Group
CHAIRS
Wilson Chu
K&L Gates LLP
Dallas, TX
Jessica Pearlman
K&L Gates LLP
Seattle, WA
ISSUE GROUP LEADERS
Mark Danzi
Mangrove Equity Partners
Tampa, FL
Edward Deibert
Arnold & Porter LLP
San Francisco, CA
Robert DelPriore
Mid-America Apartment
Communities Inc.
Memphis, TN
W. Ashley Hess
Baker & Hostetler LLP
Cincinnati, OH
Michael Kendall
Goodwin Procter LLP
Boston, MA
Craig Menden
Cooley LLP
Palo Alto, CA
Naomi Ogan
K&L Gates LLP
Seattle, WA
Carl Sanchez
Paul Hastings LLP
San Diego, CA
Chris Scheurer
McGuireWoods LLP
Charlotte, NC
Claudia Simon
Paul Hastings LLP
Los Angeles, CA
James Sullivan
Alston & Bird LLP
New York, NY
DISCLAIMERS
The findings presented in this Study do not necessarily reflect the personal views of the Working Group members or the views
of their respective firms. In addition, the acquisition agreement provisions that form the basis of this Study are drafted in many
different ways and do not always fit precisely into particular “data point” categories. Therefore, Working Group
members have had to make various judgment calls regarding, for example, how to categorize the nature or effect of the
provisions. As a result, the conclusions presented in this Study may be subject to important qualifications that are not expressly
articulated in this Study.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 3
ADVANCE COPY release #1: 30Dec13
Private Target Study Working Group
Daniel Avery
Goulston & Storrs
Boston, MA
Steve Boender
K&L Gates LLP
Portland, OR
Abigail Bomba
Fried, Frank, Harris, Shriver & Jacobson LLP
New York, NY
Richard Brody
Troutman Sanders LLP
Atlanta, GA
Jaron Brown
King & Spalding LLP
Atlanta, GA
Eric Chow
Cooley LLP
Palo Alto, CA
Nick Claassen
DigitalGlobe Inc.
Longmont, CO
Jay Cohen
Duane Morris LLP
Baltimore, MD
John Corrigan
John F. Corrigan, P.C.
Providence, RI
Robert Dickey
Morgan, Lewis & Bockius LLP
New York, NY
Dan Espinoza
Cooley LLP
Palo Alto, CA
Bryan Gadol
Morgan, Lewis & Bockius LLP
Irvine, CA
Ted George
Chaffe McCall LLP
New Orleans, LA
Greg Giammittorio
Morrison & Foerster LLP
McLean, VA
Lisa Hedrick
Hirschler Fleischer
Richmond, VA
Patrick Henderson
Shook, Hardy & Bacon, L.L.P.
Kansas City, MO
Troy Hickman
Perkins Coie LLP
Seattle, WA
Alyssa Hirschfeld
Oppenheimer, Wolff & Donnelly
Minneapolis, MN
Woody Jones
Andrews Kurth LLP
Houston, TX
Barbara Kaye
Honigman Miller Schwartz and Cohn LLP
Ann Arbor, MI
Robert Kim
Ballard Spahr LLP
Las Vegas, NV
Frank C. Koranda, Jr.
SNR Denton
Kansas City, MO
Kevin Kyte
Stikeman Elliott LLP
Montreal, Canada
Brian Lenihan
Choate Hall & Stewart LLP
Boston, MA
Cindy Lin
Andrews Kurth LLP
Houston, TX
Marty Lorenzo
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
San Diego, CA
Samuel Mullin
Robinson & Cole LLP
Boston, MA
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 4
ADVANCE COPY release #1: 30Dec13
Private Target Study Working Group
Ayuko Nemoto
K&L Gates LLP
Tokyo, Japan
J. Matthew Owens
Arnold & Porter LLP
Washington, DC
Tatjana Paterno
Bass, Berry & Sims PLC
Nashville, TN
Cliff Pearl
Polsinelli Shughart PC
Denver, CO
Chris Pesch
Baker & Hostetler LLP
Chicago, IL
Chris Phillips
Waller Lansden Dortch & Davis LLP
Nashville, TN
Michael Phillips
Davis Wright Tremaine LLP
Portland, OR
Thomas Queen
Graves Dougherty Hearon & Moody
Austin, TX
Jim Scheinkman
Snell & Wilmer L.L.P.
Orange County, CA
Mark Seneca
Orrick Herrington & Sutcliffe LLP
Menlo Park, CA
Tyler J. Sewell
Morrison & Foerster LLP
Denver, CO
Rachel Mitchell Smith
Goodwin Procter
Boston, MA
John E. Stoddard III
Drinker Biddle & Reath LLP
Princeton, NJ
Mark Stoneman
Armstrong Teasdale LLP
St. Louis, MO
Ben Straughan
Perkins Coie LLP
Seattle, WA
Jay Sullivan
Goodwin Procter LLP
Boston, MA
Kevin Sullivan
Weil, Gotshal & Manges LLP
Boston, MA
Brett Thorstad
Sabre Holdings
Dallas, TX
Isabella Wezdecki
Johnson & Johnson
New York, NY
Daniel P. White
Goodwin Procter
Boston, MA
Rhys Wilson
Nelson Mullins Riley & Scarborough LLP
Atlanta, GA
Iain Wood
Akin Gump LLP
Dallas, TX
Tina Woodside
Gowling Lafleur Henderson LLP
Toronto, Canada
Thomas M. Worthington
McGrath North Mullin & Kratz, PC LLO
Omaha, NE
Yumi Yokoyama
K&L Gates LLP
Seattle, WA
Matt Zmigrosky
Akin Gump LLP
Dallas, TX
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 5
ADVANCE COPY release #1: 30Dec13
Private Target Study Sample Overview
пЃґ
This Study analyzes publicly available acquisition agreements for
transactions completed in 2012 that involved private targets being acquired
by public companies. The previous studies published in 2011, 2009, and
2007 analyzed such agreements for transactions completed in 2010, 2008,
and 2006, respectively.
пЃґ
The final Study sample of 136 acquisition agreements excludes
agreements for transactions in which the target was in bankruptcy, reverse
mergers, and transactions otherwise deemed inappropriate for inclusion.
Asset deals comprised 10% of the Study sample.
Transaction
Value* Range
$17.2M - $4.7B
# of
Deals
136
Closing
Deferred
Simultaneous Sign-and-Close
88%
12%
* For purposes of this Study, it is assumed that transaction value as determined by S&P Capital IQ is equal to “Purchase Price” as
that term is used in the underlying acquisition agreements.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 6
ADVANCE COPY release #1: 30Dec13
Private Target Study Sample Overview
(by transaction value)*
$51M - $100M
21%
$101M - $200M
21%
$17M - $50M
16%
$201M - $300M
13%
Over $500M
15%
$401M - $500M
4%
$301M - $400M
10%
* For the Study sample, the average transaction value was $305 million and the median transaction value was $150 million.
Excludes uncapped earnouts and assumption of debt.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 7
ADVANCE COPY release #1: 30Dec13
Private Target Study Sample Overview
(by industry)*
Industrial Goods &
Services
11%
Health Care
20%
Financial Services
4%
Personal & Household
Goods
2%
Retail
2%
Construction &
Materials
1%
Media
4%
Oil & Gas
10%
Telecom
7%
Other
6%
Food & Beverage
4%
Technology
26%
Aerospace & Defense
4%
* Percentages total 101% due to rounding.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 8
ADVANCE COPY release #1: 30Dec13
Private Target Study Sample Overview
(by nature of principal sellers)
Entrepreneurial
39%
(47% in deals in 2010)
(61% in deals in 2008)
Financial
49%
(45% in deals in 2010)
(27% in deals in 2008)
Corporate
12%
(8% in deals in 2010)
(11% in deals in 2008)
Entrepreneurial: founders appear to dominate management/ownership
Corporate: founders appear not to dominate management/ownership (other than “Financial”)
Financial: backed by financial sponsors (including VCs) who appear to have significant influence/control
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 9
ADVANCE COPY release #1: 30Dec13
Contents
I.
Financial Provisions…………………………………………………………………………………………..Slide 11
A.
B.
II.
Pervasive Qualifiers ………………………………………………………………………………………….Slide 25
A.
B.
III.
Accuracy of Target’s Representations ……………………………………………………………………………………Slide 58
Buyer’s MAC Condition ……………………………………………………………………………………………………...Slide 66
No Legal Proceedings Challenging the Transaction………………………………………………………………………Slide 68
Legal Opinions ………………………………………………………………………………………………………………Slide 71
Appraisal Rights ………………………………………………………………………………………………………………Slide 72
Indemnification …….………….………………………………………………………………………………Slide 74
A.
B.
C.
D.
E.
F.
G.
H.
I.
J.
K.
L.
M.
VI.
Financial Statements ………………………………………………………………………………………………………Slide 44
“No Undisclosed Liabilities” …………………………………………………………………………………………………Slide 46
Compliance with Law ………………………………………………………………………………………………………Slide 48
“10b-5”/Full Disclosure Representation ……………………………………………………………………………………Slide 50
Covenants ……………………………………………………………………………………………………………………Slide 52
Conditions to Closing………….………….………………………………………………………………….Slide 57
A.
B.
C.
D.
E.
V.
Material Adverse Effect (“MAE”) ……………………………………………………………………………………………Slide 26
Knowledge ……………………………………………………………………………………………………………………Slide 40
Target’s Representations, Warranties, and Covenants ……………………………………………….Slide 43
A.
B.
C.
D.
E.
IV.
Post-Closing Purchase Price Adjustments…………………………………………………………………………………Slide 12
Earnouts ………………………………………………………………………………………………………………………Slide 20
“Sandbagging”…………………………………………………………………………………………………………………Slide 75
“No Other Representations and Warranties”/Non-Reliance………………………………………………………………Slide 79
Non-Reliance, “Sandbagging,” and “10b-5” Representation Correlations………………………………………………Slide 82
Survival/Time to Assert Claims ……………………………………………………………………………………………Slide 85
Types of Damages/Losses Covered ………………………………………………………………………………………Slide 88
Baskets ………………………………………………………………………………………………………………………Slide 90
Eligible Claim Threshold ……………………………………………………………………………………………………Slide 96
“Double Materiality” Scrape ………………………………………………………………………………………………Slide 98
Caps …………………………………………………………………………………………………………………………Slide 100
Indemnification as Exclusive Remedy ……………………………………………………………………………………Slide 103
Escrows/Holdbacks …………………………………………………………………………………………………………Slide 105
Stand-Alone Indemnities ……………………………………………………………………………………………………Slide 108
Reductions Against Buyer’s Indemnification Claims ……………………………………………………………………Slide 109
Dispute Resolution ……………….………………………………………………………………………..Slide 110
A.
B.
C.
Waiver of Jury Trial …………………………………………………………………………………………………………Slide 111
Alternative Dispute Resolution ……………………………………………………………………………………………Slide 112
Post-Closing Representation of Shareholders...…………………………………………………………………………Slide 114
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 10
ADVANCE COPY release #1: 30Dec13
Financial Provisions
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 11
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Financial Provisions
Post-Closing Purchase Price Adjustments
The “Adjustment Amount” (which may be a positive or negative number) will
be equal to the amount determined by subtracting the Closing Working
Capital from the Initial Working Capital. If the Adjustment Amount is positive,
the Adjustment Amount shall be paid by wire transfer by Seller to an account
specified by Buyer. If the Adjustment Amount is negative, the difference
between the Closing Working Capital and the Initial Working Capital shall be
paid by wire transfer by Buyer to an account specified by Seller.
…
“Working Capital” as of a given date shall mean the amount calculated by
subtracting the current liabilities of Seller… as of that date from the current
assets of Seller… as of that date. The Working Capital of Seller as of the
date of the Balance Sheet (the “Initial Working Capital”) was ______ dollars
($______).
(ABA Model Asset Purchase Agreement)
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 12
ADVANCE COPY release #1: 30Dec13
Financial Provisions
Post-Closing Purchase Price Adjustments
No
Adjustment
Provision
15%
Includes
Adjustment
Provision
85%
(Subset: includes adjustment)
Adjustment Metrics*
(82% in deals in 2010)
(79% in deals in 2008)
Earnings
0%
91%
Working Capital
44%
Debt
Assets
3%
Cash
Other
Deals in 2012
35%
Deals in 2010
35%
*59.5% of the post-closing purchase price adjustments were based on more than one metric.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 13
ADVANCE COPY release #1: 30Dec13
Financial Provisions
Post-Closing Purchase Price Adjustments –
Estimated Payments at Closing
(Subset: deals with post-closing purchase price adjustment)
Includes Payment at Closing
Based on Target’s Estimate?
No
12%
Yes
88%
(85% in deals in 2010)
(76% in deals in 2008)
(Subset: includes estimated closing payment)
Does Buyer Have Express Right to
Approve Estimated Payment Amount?
Yes
26%
No
74%
(68% in deals in 2010)
(59% in deals in 2008)
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 14
ADVANCE COPY release #1: 30Dec13
Financial Provisions
Post-Closing Purchase Price Adjustments –
Working Capital Excludes Tax-Related Items
“Adjusted Working Capital” means current assets minus current
liabilities; provided, however, that “Adjusted Working Capital”
excludes from current assets all tax assets and excludes from
current liabilities all tax liabilities.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 15
ADVANCE COPY release #1: 30Dec13
Financial Provisions
Post-Closing Purchase Price Adjustments –
Working Capital Excludes Tax-Related Items
(Subset: deals with working capital purchase price adjustment)
Tax-Related Items
Excluded From
Calculation
39%
(20% in deals in 2010)
(15% in deals in 2008)
Indeterminable
18%
(25% in deals in 2010)
(9% in deals in 2008)
Tax-Related Items
Not Excluded From
Calculation
43%
(55% in deals in 2010)
(76% in deals in 2008)
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 16
ADVANCE COPY release #1: 30Dec13
Financial Provisions
Post-Closing Purchase Price Adjustments –
Preparation of Closing Balance Sheet
(Subset: deals with post-closing purchase price adjustment)
Methodology*
Preparing Party*
Other
33%
(41% in deals in 2010)
(30% in deals in 2008)
Silent
7%
(4% in deals in 2010)
(7% in deals in 2008)
Seller
9%
(9% in deals in 2010)
(12% in deals in 2008)
Buyer
90%
(86% in deals in 2010)
(83% in deals in 2008)
Other
0%
Indeterminable
2%
(4% in deals in 2010)
(5% in deals in 2008)
(1% in deals in 2010)
(0% in deals in 2008)
GAAP
Consistent with
Past Practices
45%
GAAP
16%
(14% in deals in 2010)
(24% in deals in 2008)
(42% in deals in 2010)
(39% in deals in 2008)
* Percentages total 101% due to rounding.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 17
ADVANCE COPY release #1: 30Dec13
Financial Provisions
Post-Closing Purchase Price Adjustments –
Separate Escrow
Includes
Separate
Escrow
31%
(Subset: deals with post-closing purchase price adjustment)
(Subset: no separate escrow*)
No Separate
Escrow
69%
Payment Not
from
Indemnity
Escrow
24%
(26% in deals in 2010)
(65% in deals in 2010)
(80% in deals in 2008)
Silent
13%
True-Up
Payment from
Indemnity
Escrow
57%
(4% in deals in 2010)
N/A (No
Indemnity
Escrow/
Holdback)
6%
(44% in deals in 2010)
(26% in deals in 2010)
* 2008 data omitted, as the 2009 Study omitted deals with no indemnity escrow/holdback from this calculation.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 18
ADVANCE COPY release #1: 30Dec13
Financial Provisions
Post-Closing Purchase Price Adjustments –
Threshold
(Subset: deals with post-closing purchase price adjustment)
Purchase Price
Adjustment
Amount Need Not
Exceed a Threshold
91%
Purchase Price
Adjustment Paid
Only if Exceeds
Threshold
9%
(16% in deals in 2010)
(15% in deals in 2008)
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 19
ADVANCE COPY release #1: 30Dec13
Financial Provisions
Earnouts
No Earnout
75%
(62% in deals in 2010)
(71% in deals in 2008)
Includes
Earnout
25%
(Subset: includes earnout)
Earnout Metrics
Other
30%
(26% in deals in 2010)
Not
Determinable
5%
(11% in deals in 2010)
Combo
3%
(5% in deals in 2010)
Earnings/
EBITDA
30%
Revenue
32%
(37% in deals in 2010)
(32% in deals in 2010)
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 20
ADVANCE COPY release #1: 30Dec13
Financial Provisions
Earnouts –
Period of Earnout
(Subset: deals with earnouts*)
6%
<12 months
32%
12 months
>12 to <24 months
0%
18%
24 months
>24 to <36 months
3%
36 months
48 Months
Not Determinable
9%
12%
21%
* Percentages total 101% due to rounding.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 21
ADVANCE COPY release #1: 30Dec13
Financial Provisions
Earnouts –
Buyer’s Covenants as to Acquired Business
(Subset: deals with earnouts)
Covenant to Run Business
Consistent with Past Practice
Covenant to Run Business
to Maximize Earnout
Included
18%
Included
6%
(27% in deals in 2010)
(29% in deals in 2008)
(8% in deals in 2010)
(10% in deals in 2008)
Indeterminable
6%
Not Included
76%
Indeterminable
6%
Not Included
88%
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 22
ADVANCE COPY release #1: 30Dec13
Financial Provisions
Earnouts –
Acceleration and Offsets
(Subset: deals with earnouts)
Can Buyer Offset Indemnity
Payments Against Earnout?*
Does the Earnout Expressly
Accelerate on a Change of Control?
No
76%
(60% in deals in 2010)
(54% in deals in 2008)
Indeterminable
3%
(5% in deals in 2010)
(13% in deals in 2008)
Express Yes
68%
(62% in deals in 2010)
(58% in deals in 2008)
Express No
0%
(5% in deals in 2010)
(10% in deals in 2008)
Yes
21%
Silent
27%
(35% in deals in 2010)
(33% in deals in 2008)
(24% in deals in 2010)
(16% in deals in 2008)
Indeterminable
6%
(8% in deals in 2010)
(16% in deals in 2008)
* Percentages total 101% due to rounding.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 23
ADVANCE COPY release #1: 30Dec13
Financial Provisions
Earnouts –
Express Disclaimer of Fiduciary Relationship
(Subset: deals with earnouts)
Includes Express
Disclaimer of
Fiduciary
Relationship with
Respect to
Earnout
15%
(3% in deals in 2010)
(6% in deals in 2008)
Express Disclaimer
of Fiduciary
Relationship Not
Included
79%
(86% in deals in 2010)
(81% in deals in 2008)
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Indeterminable
6%
(11% in deals in 2010)
(13% in deals in 2008)
Private Target Study, slide 24
ADVANCE COPY release #1: 30Dec13
Pervasive Qualifiers
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 25
ADVANCE COPY release #1: 30Dec13
Pervasive Qualifiers
Definition of “Material Adverse Effect”
“Material Adverse Effect” means any result, occurrence, fact, change,
event or effect that has a materially adverse effect on the business,
assets, liabilities, capitalization, condition (financial or other), results of
operations or prospects of Target.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 26
ADVANCE COPY release #1: 30Dec13
Pervasive Qualifiers
Definition of “Material Adverse Effect”
MAE Defined*
96%
(97% in deals in 2010)
(92% in deals in 2008)
(Subset: MAE defined)
MAE Not Defined
4%
"Prospects"
Included
17%
"Prospects" Not
Included
83%
(84% in deals in 2010)
(62% in deals in 2008)
* Excludes two agreements for which the applicable provisions were included on an unfiled schedule.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 27
ADVANCE COPY release #1: 30Dec13
Pervasive Qualifiers
Definition of “Material Adverse Effect” –
Forward Looking Standards
“Material Adverse Effect” means any result, occurrence, fact, change,
event or effect that has, or could reasonably be expected to have, a
materially adverse effect on the business, assets, liabilities,
capitalization, condition (financial or other), results of operations or
prospects of Target.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 28
ADVANCE COPY release #1: 30Dec13
Pervasive Qualifiers
Definition of “Material Adverse Effect” –
Forward Looking Standards*
(Subset: deals with MAE definition)
(97% in deals in 2010)
(74% in deals in 2008)
* Because many agreements use multiple forward looking standards (e.g., “would be” or “could be”), often without a discernible
consistency regarding the use of each standard, data as to the prevalence of various forward looking standards is omitted.
** Includes both deals where the MAE definition included forward looking language and deals where the MAE definition did not
include forward looking language but forward looking language was predominantly used in conjunction with the use of the defined
term in the body of the agreement.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 29
ADVANCE COPY release #1: 30Dec13
Pervasive Qualifiers
Definition of “Material Adverse Effect” –
Buyer’s Ability to Operate Target’s Business Post Closing
Target’s Ability to Consummate Contemplated Transaction
“Material Adverse Effect” means any result, occurrence, fact, change,
event or effect that is or could reasonably be expected to have a
materially adverse effect on (i) the business, assets, liabilities,
capitalization, condition (financial or other), or results of operations of
Target, (ii) Seller’s ability to consummate the transactions
contemplated hereby, or (iii) Buyer’s ability to operate the
business of Target immediately after Closing in the manner
operated by Seller before Closing.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 30
ADVANCE COPY release #1: 30Dec13
Pervasive Qualifiers
Definition of “Material Adverse Effect” –
Includes Reference to Specific Dollar Amount Threshold
“Material Adverse Effect” means any result, occurrence, fact, change,
event or effect that is or could reasonably be expected to (a) be
materially adverse to (i) the business, assets, properties, condition
(financial or otherwise), or results of operations of the Target and its
subsidiaries, taken as a whole, or (ii) the ability of the Target to
perform its obligations under this Agreement or (b) result in losses to
the Target and its subsidiaries, taken as a whole, in an aggregate
amount equal to or exceeding $_________.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 31
ADVANCE COPY release #1: 30Dec13
Pervasive Qualifiers
Definition of “Material Adverse Effect”
(Subset: deals with MAE definition*)
Includes Buyer’s Ability to
Operate Target’s Business Post Closing
Includes Reference to Specific Dollar
Amount Threshold
Yes
0%
Yes
4%
No
96%
No
100%
(97% in deals in 2010)
(94% in deals in 2008)
(92% in deals in 2010)
(98% in deals in 2008)
Includes Target’s Ability to
Consummate Contemplated Transaction
No
43%
Yes
57%
(55% in deals in 2010)
(50% in deals in 2008)
* Excludes two agreements for which the applicable provisions were included on an unfiled schedule.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 32
ADVANCE COPY release #1: 30Dec13
Pervasive Qualifiers
Definition of “Material Adverse Effect” –
Carve Outs
“Material Adverse Effect” means…, except to the extent resulting
from (A) changes in general local, domestic, foreign, or international
economic conditions, (B) changes affecting generally the industries or
markets in which Target operates, (C) acts of war, sabotage or
terrorism, military actions or the escalation thereof, (D) any changes in
applicable laws or accounting rules or principles, including changes in
GAAP, (E) any other action required by this Agreement, or (F) the
announcement of the Transactions.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 33
ADVANCE COPY release #1: 30Dec13
Pervasive Qualifiers
Definition of “Material Adverse Effect” –
Carve Outs
(Subset: deals with MAE definition*)
No Carve Outs
Included
9%
Definition Includes
Carve Outs
91%
(87% in deals in 2010)
(79% in deals in 2008)
* Excludes two agreements for which the applicable provisions were included on an unfiled schedule.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 34
ADVANCE COPY release #1: 30Dec13
Pervasive Qualifiers
Definition of “Material Adverse Effect” –
Carve Outs
(Subset: deals with MAE definition with carve outs*)
Actions Required by Agreement
67%
Deals in 2012
81%
Announcement of Deal
Deals in 2008
77%
Changes in Accounting
85%
Changes in Law
98%
Economic Conditions
Financial Market Downturn
Deals in 2010
69%
Industry Conditions
War or Terrorism
85%
88%
* Excludes two agreements for which the applicable provisions were included on an unfiled schedule.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 35
ADVANCE COPY release #1: 30Dec13
Pervasive Qualifiers
Definition of “Material Adverse Effect” –
Carve Out(s) Qualified by Disproportionate Effect
“Material Adverse Effect” means…, except to the extent resulting from
(A) changes in general local, domestic, foreign, or international
economic conditions, (B) changes affecting generally the industries or
markets in which Target operates, (C) acts of war, sabotage or
terrorism, military actions or the escalation thereof, (D) any changes in
applicable laws or accounting rules or principles, including changes in
GAAP, (E) any other action required by this Agreement, or (F) the
announcement of the Transactions (provided that such event,
change, or action does not affect Target in a substantially
disproportionate manner).
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 36
ADVANCE COPY release #1: 30Dec13
Pervasive Qualifiers
Definition of “Material Adverse Effect” –
Carve Out(s) Qualified by Disproportionate Effect
(Subset: deals with MAE definition with carve outs*)
No Carve Outs
Qualified by
Disproportionate
Effect
9%
At Least One Carve
Out Qualified by
Disproportionate
Effect
91%
(80% in deals in 2010)
(78% in deals in 2008)
* Excludes two agreements for which the applicable provisions were included on an unfiled schedule.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 37
ADVANCE COPY release #1: 30Dec13
Pervasive Qualifiers
Definition of “Material Adverse Effect” –
Application to Individual Subsidiaries
“Material Adverse Effect” means any result, occurrence, fact, change,
event or effect that is or could reasonably be expected to have a
materially adverse effect on the business, assets, liabilities,
capitalization, condition (financial or other), or results of operations of
Target or any of its Subsidiaries.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 38
ADVANCE COPY release #1: 30Dec13
Pervasive Qualifiers
Definition of “Material Adverse Effect” –
Application to Individual Subsidiaries
(Subset: deals with MAE definition*)
MAE Applies to
Target and
Subsidiaries
Together
86%
Silent
12%
(13% in deals in 2010)
(6% in deals in 2008)
(84% in deals in 2010)
(89% in deals in 2008)
MAE Applies to
Target or
Subsidiaries
Individually
2%
(3% in deals in 2010)
(5% in deals in 2008)
* Excludes 51 deals where Target had no subsidiaries.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 39
ADVANCE COPY release #1: 30Dec13
Pervasive Qualifiers
Knowledge –
Standards
Actual Knowledge
“Knowledge" means the actual knowledge of the directors and
officers of Target.
Constructive Knowledge (Role-Based Deemed Knowledge)
“Knowledge of the Target” means the actual knowledge of the Chief
Executive Officer, the President and the Chief Financial Officer of
Target and the knowledge that each such person would
reasonably be expected to obtain in the course of diligently
performing his or her duties for the Target.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 40
ADVANCE COPY release #1: 30Dec13
Pervasive Qualifiers
Actual
Knowledge
18%
Knowledge Not
Defined
2%
Knowledge –
Standards
(Subset: constructive knowledge*)
Constructive
Knowledge
80%
(73% in deals in 2010)
(68% in deals in 2008)
71%
Express Investigation Reasonable or Due
Inquiry
10%
Role-Based Deemed
Knowledge
Deals in 2012
19%
Other
*
Deals in 2010
Deals in 2008
Four deals include more than one constructive knowledge element, e.g., role-based deemed knowledge and an express
investigation requirement.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 41
ADVANCE COPY release #1: 30Dec13
Pervasive Qualifiers
Knowledge –
Whose Knowledge is Imputed to Target?
Identified
Persons Included
96%
(93% in deals in 2010)
(91% in deals in 2008)
No Identified
Person
4%
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 42
ADVANCE COPY release #1: 30Dec13
Target’s Representations,
Warranties, and Covenants
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 43
ADVANCE COPY release #1: 30Dec13
Target’s Representations, Warranties, and Covenants
Financial Statements –
“Fair Presentation” Representation
“Fairly presents” is GAAP qualified
The financial statements fairly present (and the financial statements delivered
pursuant to Section 5.8 will fairly present) the financial condition and the results
of operations, changes in shareholders’ equity and cash flows of [Target] as at
the respective dates of and for the periods referred to in such financial
statements, all in accordance with GAAP.
(ABA Model Asset Purchase Agreement)
“Fairly presents” is not GAAP qualified
The Financial Statements (i) fairly present the consolidated financial condition
and the results of operations, changes in shareholders’ equity, and cash flows of
the Company and its Subsidiaries as at the respective dates of, and for the
periods referred to in, the Financial Statements, and (ii) were prepared in
accordance with GAAP, subject, in the case of the Unaudited Financial
Statements, to normal recurring year-end adjustments.
(ABA Model Stock Purchase Agreement, Second Edition)
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 44
ADVANCE COPY release #1: 30Dec13
Target’s Representations, Warranties, and Covenants
Financial Statements –
“Fair Presentation” Representation
Rep Not
Included
1%
"Fair
Presentation"
Rep Included
99%
(77% in deals in 2010)
(Subset: “Fair Presentation” Rep Included)
"Fair
Presentation" Rep
is GAAP Qualified
22%
Not GAAP
Qualified
78%
(76% in deals in 2010)
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 45
ADVANCE COPY release #1: 30Dec13
Target’s Representations, Warranties, and Covenants
“No Undisclosed Liabilities” Representation
Buyer-Favorable Formulation
Target has no liability except for liabilities reflected or reserved against in the
Balance Sheet or the Interim Balance Sheet and current liabilities incurred in
Target’s ordinary course of business since the date of the Interim Balance
Sheet.
Target-Favorable Formulation
Target has no liability of the nature required to be disclosed in a balance
sheet prepared in accordance with GAAP except for…
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 46
ADVANCE COPY release #1: 30Dec13
Target’s Representations, Warranties, and Covenants
“No Undisclosed Liabilities” Representation
Not
Knowledge
Qualified
97%
(94% in deals in 2010)
(95% in deals in 2008)
Rep Not
Included
6%
Knowledge
Qualified
3%
(Subset: includes rep)
"GAAP
Liabilities"
(Target
Favorable)
22%
Includes Rep
94%
(96% in deals in 2010)
(97% in deals in 2008)
"All Liabilities"
(Buyer
Favorable)
78%
(61% in deals in 2010)
(78% in deals in 2008)
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 47
ADVANCE COPY release #1: 30Dec13
Target’s Representations, Warranties, and Covenants
Compliance with Law Representation
[To the Sellers’ knowledge,] the business of Target [has been and]
is being conducted in compliance with all applicable laws.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 48
ADVANCE COPY release #1: 30Dec13
Target’s Representations, Warranties, and Covenants
Compliance with Law Representation
Not Included
1%
Deals in 2012
(Subset: includes rep)
Deals in 2010
Includes
Compliance with
Law Rep
99%
(99% in deals in 2010)
(100% in deals in 2008)
Deals in 2008
5%
Knowledge Qualified
33%
Covers Present AND
Past Compliance
39%
Includes Notice of
Investigation*
73%
Includes Notice of
Violation
* Does not test whether notice of investigation requirement appears in other representations.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 49
ADVANCE COPY release #1: 30Dec13
Target’s Representations, Warranties, and Covenants
“10b-5”/Full Disclosure Representation
“10b-5” Formulation
No representation or warranty or other statement made by [Target] in this
Agreement, the Disclosure Letter, any supplement to the Disclosure Letter, the
certificates delivered pursuant to Section 8.3, or otherwise in connection with
the Contemplated Transactions contains any untrue statement of material fact
or omits to state a material fact necessary to make the statements in this
Agreement or therein, in light of the circumstances in which they were made,
not misleading.
(ABA Model Stock Purchase Agreement, Second Edition)
Full Disclosure Formulation
Seller does not have Knowledge of any fact that has specific application to
Seller (other than general economic or industry conditions) and that may
materially adversely affect the assets, business, prospects, financial condition
or results of operations of Seller that has not been set forth in this Agreement or
the Disclosure Letter.
(ABA Model Asset Purchase Agreement)
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 50
ADVANCE COPY release #1: 30Dec13
Target’s Representations, Warranties, and Covenants
“10b-5”/Full Disclosure Representation
Rep Not
Included
64%
"10b-5" AND
Full Disclosure
Formulation
4%
(63% in deals in 2010)
(32% in deals in 2008)
(4% in deals in 2010)
(9% in deals in 2008)
Full Disclosure
Formulation
Only
0%
(2% in deals in 2010)
(1% in deals in 2008)
(Subset: “10b-5” formulation only)
"10b-5"
Formulation
Only
32%
(31% in deals in 2010)
(58% in deals in 2008)
Not Knowledge
Qualified
73%
(77% in deals in 2010)
(87% in deals in 2008)
Knowledge
Qualified
27%
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 51
ADVANCE COPY release #1: 30Dec13
Target’s Representations, Warranties, and Covenants
Covenants – Updating of Disclosure Schedules Before
Closing*
What Information Can/Must Be Updated?
Silent
55%
(57% in deals in 2010)
Both PreSigning and
Post-Signing
Info
53%
(58% in deals in 2010)
Updates
Permitted or
Required
31%
Post-Signing
Info Only
47%
(42% in deals in 2010)
(37% in deals in 2010)
(Subset: updates Permitted or Required)
Pre-Signing
Info Only
0%
(0% in deals in 2010)
Is Buyer’s Right to Indemnification
Limited for Updated Matters?
Updates
Expressly
Prohibited
14%
Yes
39%
(6% in deals in 2010)
No
61%
(54% in deals in 2010)
*
Includes deferred closing deals only.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 52
ADVANCE COPY release #1: 30Dec13
Target’s Representations, Warranties, and Covenants
Covenants – Notice of Breaches of Representations,
Warranties, and Covenants*
Target Expressly
Required to Notify
Buyer of Breaches
68%
(66% in deals in 2010)
(71% in deals in 2008)
Silent
32%
*
Includes deferred closing deals only.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 53
ADVANCE COPY release #1: 30Dec13
Target’s Representations, Warranties, and Covenants
Covenants – Operation in the Ordinary Course*
Is Covenant Qualified?
Includes
Covenant to
Operate in
Ordinary
Course
95%
Not Qualified
84%
(83% in deals in 2010)
Qualified by An
"Efforts"
Standard
16%
(Subset: includes Ordinary Course Covenant)
Not Included
5%
(6% in deals in 2010)
Qualified by
"Consistent
with Past
Practice"
89%
(86% in deals in 2010)
*
Not Qualified
11%
Includes deferred closing deals only.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 54
ADVANCE COPY release #1: 30Dec13
Target’s Representations, Warranties, and Covenants
Covenants – No Shop/No Talk
Between the date of this Agreement and the earlier of the Closing and
the termination of this Agreement, Target shall not, and shall take all
action necessary to ensure that none of Target’s Representatives shall
(i) solicit, initiate, consider, encourage or accept any proposal or offer
that constitutes an Acquisition Proposal or (ii) participate in any
discussions, conversations, negotiations or other communications
regarding, or furnish to any other Person any information with respect
to, or otherwise cooperate in any way, assist or participate in, facilitate
or encourage the submission of, any proposal that constitutes, or
could reasonably be expected to lead to, an Acquisition Proposal.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 55
ADVANCE COPY release #1: 30Dec13
Target’s Representations, Warranties, and Covenants
Covenants – No Shop/No Talk*
Includes No
Shop/No Talk
Provisions
85%
(Subset: includes No Shop/No Talk)
Not Included
15%
(17% in deals in 2010)
(14% in deals in 2008)
Deal Structured
as Direct Stock
Purchase
41%
No Fiduciary
Exception
50%
(37% in deals in 2010)
(51% in deals in 2010)
*
Includes deferred closing deals only.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Includes
Fiduciary
Exception
9%
(12% in deals in 2010)
Private Target Study, slide 56
ADVANCE COPY release #1: 30Dec13
Conditions to Closing*
* Includes deferred closing deals only.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 57
ADVANCE COPY release #1: 30Dec13
Conditions to Closing
Accuracy of Target’s Representations –
When Must They Be Accurate?
Single point in time: at closing
Each of the representations and warranties made by Target in this Agreement
shall have been accurate in all respects as of the Closing Date as if made on
the Closing Date.
Two points in time: at signing and at closing
Each of the representations and warranties made by Target in this Agreement
shall have been accurate in all respects as of the date of this Agreement, and
shall be accurate in all respects as of the Closing Date as if made on the
Closing Date.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 58
ADVANCE COPY release #1: 30Dec13
Conditions to Closing
Accuracy of Target’s Representations –
When Must They Be Accurate?
At Signing and
Closing
57%
At Closing Only
42%
(59% in deals in 2010)
(66% in deals in 2008)
N/A (No Accuracy
Condition)
1%
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 59
ADVANCE COPY release #1: 30Dec13
Conditions to Closing
Accuracy of Target’s Representations –
How Accurate Must They Be?
Accurate in all respects
Each of the representations and warranties made by Target in this Agreement
shall have been accurate in all respects as of the Closing Date as if made on
the Closing Date.
Accurate in all material respects
Each of the representations and warranties made by Target in this Agreement
shall have been accurate in all material respects as of the Closing Date as if
made on the Closing Date.
MAE qualification
Each of the representations and warranties made by Target in this Agreement
shall be accurate in all respects as of the Closing Date as if made on the
Closing Date, except for inaccuracies of representations or warranties
the circumstances giving rise to which, individually or in the aggregate,
do not constitute and could not reasonably be expected to have a
Material Adverse Effect.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 60
ADVANCE COPY release #1: 30Dec13
Conditions to Closing
Accuracy of Target’s Representations –
How Accurate Must They Be?
(inclusion of materiality qualifiers)
"In all
material
respects"**
60%
“When Made”
“Bring Down”
(i.e., at signing)
(i.e., at closing)*
"In all
material
respects"**
53%
MAE
39%
(29% in deals in 2010)
(48% in deals in 2010)
MAE
47%
(49% in deals in 2010)
(59% in deals in 2010)
"In all
respects"
1%
(12% in deals in 2010)
"In all
respects"
0%
(3% in deals in 2010)
* Includes deals with both “when made” and “bring down” requirements and deals solely with a “bring down” requirement.
** Includes both deals where specific reps are carved out of general standard and deals that use a formulation such as
“representations and warranties that are qualified by materiality must be accurate in all respects and all other
representations and warranties must be accurate in all material respects.”
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 61
ADVANCE COPY release #1: 30Dec13
Conditions to Closing
Accuracy of Target’s Representations –
How Accurate Must They Be?
(MAE qualifier with capitalization carve out)
The representation and warranty set forth in Section 3.3
(Capitalization) shall be accurate in all [material] respects as of the
Closing Date as if made on the Closing Date. Each of the other
representations and warranties made by Target in this Agreement
shall be accurate as of the Closing Date as if made on the Closing
Date, except for inaccuracies of representations or warranties the
circumstances giving rise to which, individually or in the aggregate,
do not constitute and could not reasonably be expected to have a
Material Adverse Effect.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 62
ADVANCE COPY release #1: 30Dec13
Conditions to Closing
Accuracy of Target’s Representations –
How Accurate Must They Be?
(MAE qualifier with capitalization carve out)
(Subset: deals with MAE qualifiers)
“When Made”
“Bring Down”
(i.e., at signing)
(i.e., at closing)*
Includes
Capitalization
Rep Carve Out
52%
Includes
Capitalization
Rep Carve Out
41%
Not Included
59%
(36% in deals in 2010)
(73% in deals in 2008)
Not Included
48%
(39% in deals in 2010)
(68% in deals in 2008)
* Includes deals with both “when made” and “bring down” requirements and deals solely with a “bring down” requirement.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 63
ADVANCE COPY release #1: 30Dec13
Conditions to Closing
Accuracy of Target’s Representations –
How Accurate Must They Be?
(“double materiality” scrape)
Each of the representations and warranties made by Target in this
Agreement shall be accurate in all respects as of the Closing Date as
if made on the Closing Date, except for inaccuracies of
representations or warranties the circumstances giving rise to which,
individually or in the aggregate, do not constitute and could not
reasonably be expected to have a Material Adverse Effect (it being
understood that, for purposes of determining the accuracy of
such representations and warranties, all “Material Adverse
Effect” qualifications and other materiality qualifications and
similar qualifications contained in such representations and
warranties shall be disregarded).
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 64
ADVANCE COPY release #1: 30Dec13
Conditions to Closing
Accuracy of Target’s Representations –
How Accurate Must They Be?
(“double materiality” scrape)*
(Subset: deals with materiality/MAE qualifiers)
Includes "Double
Materiality"
Scrape
87%
“When Made”
“Bring Down”
(i.e., at signing)
(i.e., at closing)**
Includes "Double
Materiality"
Scrape
86%
(78% in deals in 2010)
(81% in deals in 2008)
(77% in deals in 2010)
(84% in deals in 2008)
Silent
13%
Silent
14%
* Includes deals that use a formulation such as “representations and warranties that are qualified by materiality must be true
in all respects and all other representations and warranties must be true in all material respects.”
** Includes deals with both “when made” and “bring down” requirements and deals solely with a “bring down” requirement.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 65
ADVANCE COPY release #1: 30Dec13
Conditions to Closing
Buyer’s MAC Condition
Stand-Alone:
Since the date of this Agreement, there has not been any Target Material
Adverse Change.
“Back-Door”:
“absence of changes” representation
Since the Balance Sheet Date, there has not been any Target
Material Adverse Change.
plus “bring down” formulation of “accuracy of representations” condition
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 66
ADVANCE COPY release #1: 30Dec13
Conditions to Closing
Buyer’s MAC Condition
Stand-Alone MAC
Condition Only
23%
(23% in deals in 2010)
(18% in deals in 2008)
Back Door MAC
Condition Only
20%
(17% in deals in 2010)
(18% in deals in 2008)
Both
51%
(53% in deals in 2010)
(62% in deals in 2008)
Neither
6%
(7% in deals in 2010)
(2% in deals in 2008)
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 67
ADVANCE COPY release #1: 30Dec13
Conditions to Closing
No Legal Proceedings Challenging the Transaction
There will not be pending [or threatened] any action, suit, or similar
legal proceeding brought by any Governmental Entity [or third party]
challenging or seeking to restrain or prohibit the consummation of the
Transactions.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 68
ADVANCE COPY release #1: 30Dec13
Conditions to Closing
No Legal Proceedings Challenging the Transaction
Condition Not
Included
33%
(Subset: includes condition)
Includes
Condition
67%
Governmental
Legal Proceedings
Only
28%
(33% in deals in 2010)
(18% in deals in 2008)
(69% in deals in 2010)
(73% in deals in 2008)
Any Legal
Proceeding
72%
(67% in deals in 2010)
(82% in deals in 2008)
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 69
ADVANCE COPY release #1: 30Dec13
Conditions to Closing
No Legal Proceedings Challenging the Transaction
(Subset: deals with closing condition of no legal proceedings challenging the transaction)
Combo*
4%
Pending and
Threatened
Proceedings
66%
(56% in deals in 2010)
(71% in deals in 2008)
Pending
Proceedings Only
30%
* Deals in which “threatened” only applies to a subset of legal proceedings (typically those initiated by governmental entities).
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 70
ADVANCE COPY release #1: 30Dec13
Conditions to Closing
Legal Opinions (Non-Tax) of Target’s Counsel
(All deals: includes simultaneous sign-and-close deals)
Required*
19%
(27% in deals in 2010)
(58% in deals in 2008)
Not Required**
81%
* Typically as a condition to closing, but includes opinions required in a “closing deliveries” covenant.
** Does not account for opinions that may have been required or delivered outside of the express terms of the agreement.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 71
ADVANCE COPY release #1: 30Dec13
Conditions to Closing
Appraisal Rights
Appraisal Rights Not Available:
As of the Closing, Eligible Dissenting Shares, or shares that may become
Eligible Dissenting Shares, shall represent not more than [10]% of the total
voting power of the outstanding shares of Company’s capital stock on such
date, where “Eligible Dissenting Shares” means shares of Company’s
common stock or preferred stock for which the holders have either
demanded or perfected appraisal rights in accordance with Section 262 of
the DGCL and have not effectively withdrawn or lost such appraisal rights.
Appraisal Rights Not Exercised (or Perfected):
Stockholders owning beneficially or of record no more than [5]% of the
outstanding shares of Company’s common stock will have perfected their
right of appraisal pursuant to the DGCL, and 20 days will have elapsed
since the date of mailing notification of the Company Stockholders’ Consent
to each of the Stockholders who have not executed a Company
Stockholders’ Consent.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 72
ADVANCE COPY release #1: 30Dec13
Conditions to Closing
Appraisal Rights*
Condition Not
Included
46%
Includes
Appraisal
Rights
Condition
54%
(56% in deals in 2010)
(43% in deals in 2008)
(Subset: includes condition)
Appraisal Rights Not
Available to
Specified
Percentage of
Holders
52%
(37% in deals in 2010)
(57% in deals in 2008)
Appraisal Rights Not
Exercised by
Specified
Percentage of
Holders
42%
(63% in deals in 2010)
(43% in deals in 2008)
* Represents only merger deals.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Both (Available
and/or Exercised)
6%
(0% in deals in 2010)
(0% in deals in 2008)
Private Target Study, slide 73
ADVANCE COPY release #1: 30Dec13
Indemnification
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 74
ADVANCE COPY release #1: 30Dec13
Indemnification
“Sandbagging”
(benefit of the bargain/pro-sandbagging)
The right to indemnification, payment, reimbursement, or other remedy
based upon any such representation, warranty, covenant, or obligation
will not be affected by… any investigation conducted or any
Knowledge acquired at any time, whether before or after the
execution and delivery of this Agreement or the Closing Date, with
respect to the accuracy or inaccuracy of, or compliance with, such
representation, warranty, covenant, or obligation.
(ABA Model Stock Purchase Agreement, Second Edition)
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 75
ADVANCE COPY release #1: 30Dec13
Indemnification
“Sandbagging”
(anti-sandbagging provision)
No party shall be liable under this Article for any Losses resulting from
or relating to any inaccuracy in or breach of any representation or
warranty in this Agreement if the party seeking indemnification for
such Losses had Knowledge of such Breach before Closing.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 76
ADVANCE COPY release #1: 30Dec13
Indemnification
“Sandbagging”
Benefit of the
Bargain/ProSandbagging
Provision Included*
41%
(41% in deals in 2010)
(39% in deals in 2008)
Silent
49%
(54% in deals in 2010)
(53% in deals in 2008)
*
Anti-Sandbagging
Provision Included
10%
(5% in deals in 2010)
(8% in deals in 2008)
For purposes of this Study, “benefit of the bargain/pro-sandbagging” is defined by excluding clauses that merely state, for
example, that Target’s representations and warranties “survive Buyer’s investigation” unless they include an express statement
on the impact of Buyer’s knowledge on Buyer’s post-closing indemnification rights.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 77
ADVANCE COPY release #1: 30Dec13
Indemnification
“Sandbagging” – Scope of Benefit of the Bargain/ProSandbagging Provisions
(Subset: deals with benefit of the bargain/pro-sandbagging provisions)
43%
Indemnification Rights
Only
0%
Walk Rights Only
50%
Indemnification and Walk
Rights
Deals in 2012
7%
Other*
*
Deals in 2010
E.g., “any other remedy based on representations, warranties, covenants, and agreements in this Agreement.”
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 78
ADVANCE COPY release #1: 30Dec13
Indemnification
“No Other Representations and Warranties”
(Seller’s representation)
Except for the representations and warranties contained in [Target’s
representations and warranties] (including the related portions of the
Disclosure Schedules), none of Seller, the Target or any other Person
has made or makes any other express or implied representation
or warranty, either written or oral, on behalf of Seller or the Target.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 79
ADVANCE COPY release #1: 30Dec13
Indemnification
Non-Reliance
Buyer acknowledges and agrees that Target has not made and is not
making any representations or warranties whatsoever regarding the
subject matter of this Agreement, express or implied, except as
provided in Section 3, and that it is not relying and has not relied on
any representations or warranties whatsoever regarding the
subject matter of this Agreement, express or implied, except for
the representations and warranties in Section 3.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 80
ADVANCE COPY release #1: 30Dec13
Indemnification
“No Other Representations and Warranties”/Non-Reliance*
Both "No Other
Representations"
and Non-Reliance
Clause Included
35%
Only Non-Reliance
Clause Included**
8%
(8% in deals in 2010)
(4% in deals in 2008)
(25% in deals in 2010)
(17% in deals in 2008)
Only "No Other
Representations"
Clause Included**
21%
Neither Clause
Included
35%
(28% in deals in 2010)
(55% in deals in 2008)
(39% in deals in 2010)
(24% in deals in 2008)
* Percentages total 99% due to rounding.
** Includes 10 deals with fraud carve outs to “no other representations” clause and 10 deals with fraud carve outs to express
non-reliance clause.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 81
ADVANCE COPY release #1: 30Dec13
Indemnification
Non-Reliance and “Sandbagging” – Correlation
"No Other
Representations"
or Express NonReliance
Provision
Included
64%
Benefit of the
Bargain/ProSandbagging
Provision
Included
41%
(Subset: includes non-reliance provision)
Includes Benefit
of the
Bargain/ProSandbagging
34%
(Subset: includes benefit of the
bargain/pro-sandbagging provision)
Provision Not
Included
66%
(61% in deals in 2010)
(62% in deals in 2008)
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
"No Other
Representations" or
Express NonReliance
Provision
Included
54%
Provision Not
Included
45%
(32% in deals in 2010)
(44% in deals in 2008)
Private Target Study, slide 82
ADVANCE COPY release #1: 30Dec13
Indemnification
Non-Reliance and “10b-5” Representation* – Correlation
"No Other
Representations"
or Express NonReliance Provision
Included
64%
Includes "10b-5"
Representation
36%
(Subset: includes non-reliance provision)
(Subset: includes “10b-5” Representation)
Includes "10b-5"
Representation
24%
(31% in deals in 2010)
(56% in deals in 2008)
Rep Not
Included
76%
"No Other
Representations"
or Express NonReliance Provision
Included
43%
Provision Not
Included
57%
(59% in deals in 2010)
(39% in deals in 2008)
* Includes both “10b-5” and “full disclosure” formulations.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 83
ADVANCE COPY release #1: 30Dec13
Indemnification
“Sandbagging” and “10b-5” Representation* – Correlation
Includes
"10b-5"
Representation
36%
Benefit of the
Bargain/ProSandbagging
Provision
Included
41%
(Subset: includes “10b-5” representation)
Includes
Benefit of the
Bargain/ProSandbagging
Provision
59%
(Subset: includes benefit of the
bargain/pro-sandbagging provision)
Includes
"10b-5" Rep
52%
Provision Not
Included
41%
(49% in deals in 2010)
(51% in deals in 2008)
Rep Not
Included
48%
(54% in deals in 2010)
(29% in deals in 2008)
* Includes both “10b-5” and “full disclosure” formulations.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 84
ADVANCE COPY release #1: 30Dec13
Indemnification
Survival/Time to Assert Claims
11.1
SURVIVAL…
All representations, warranties, covenants, and obligations in this Agreement,
the Disclosure Letter, the supplements to the Disclosure Letter, and any
certificate, document, or other writing delivered pursuant to this Agreement will
survive the Closing and the consummation and performance of the
Contemplated Transactions.
11.5
TIME LIMITATIONS
If the Closing occurs, Sellers shall have liability under Section 11.2(a) with
respect to any Breach of a representation or warranty (other than those in
Sections . . ., as to which a claim may be made at any time), only if on or
before the date that is ___ years after the Closing Date, Buyer notifies
[Target’s representative] of a claim, specifying the factual basis of the claim in
reasonable detail to the extent known by Buyer.
(ABA Model Stock Purchase Agreement, Second Edition)
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 85
ADVANCE COPY release #1: 30Dec13
Indemnification
Survival/Time to Assert Claims*
(generally**)
1%
Silent
Express No Survival
< 6 months***
6 months
> 7 to < 12 months
2%
Deals in 2012
0%
Deals in 2010
2%
Deals in 2008
0%
22%
12 months
17%
> 12 to < 18 months
44%
18 months
> 18 to < 24 months
1%
8%
24 months
3%
> 24 months
Statute of Limitations
1%
* Excludes 3 deals with redacted or indeterminable survival periods; percentages total 101% due to rounding.
** These periods apply to most representations and warranties; certain representations and warranties may be carved out
from these periods in order to survive for other specified periods.
*** Data not analyzed for deals in 2008.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 86
ADVANCE COPY release #1: 30Dec13
Indemnification
Survival/Time to Assert Claims –
Carve Outs to Survival Limitations*
(Subset: deals with survival provisions)
56%
Broker's/Finder's Fees (Rep)
74%
Capitalization (Rep)
75%
Due A uthority (Rep)
67%
Due Organization (Rep)
31%
Employee Benefits/ERISA (Rep)
Intellectual Property (Rep)
No Conflicts (Rep)
Deals in 2012
33%
Environmental (Rep)
Deals in 2010
13%
24%
40%
Ownership of Shares (Rep)
Deals in 2008
71%
Taxes (Rep)
Title to/Sufficiency of A ssets (Rep)
17%
42%
Fraud
Intentional Breach of Seller's/Target's Reps
22%
35%
Breach of Seller's/Target's Covenants
* Matters subject to carve outs typically survive longer than time periods generally applicable to representations. Only those
categories appearing more than 10% of the time for deals in 2012 are shown.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 87
ADVANCE COPY release #1: 30Dec13
Indemnification
Types of Damages/Losses Covered
(Subset: deals with survival provisions)
Diminution in Value
Limited to “Out of Pocket” Damages?
No
91%
Expressly
Included
14%
(100% in deals in 2010)
(96% in deals in 2008)
(13% in deals in 2010)
(27% in deals in 2008)
Silent
69%
Yes
9%
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
(70% in deals in 2010)
(58% in deals in 2008)
Expressly
Excluded
17%
(17% in deals in 2010)
(15% in deals in 2008)
Private Target Study, slide 88
ADVANCE COPY release #1: 30Dec13
Indemnification
Types of Damages/Losses Covered
(Subset: deals with survival provisions)
Incidental Damages
Expressly
Included
16%
(6% in deals in 2010)
(8% in deals in 2008)
Silent
67%
(56% in deals in 2010)
(56% in deals in 2008)
Consequential Damages
Expressly
Excluded
17%
(38% in deals in 2010)
(36% in deals in 2008)
Expressly
Included
2%
(6% in deals in 2010)
(8% in deals in 2008)
Punitive Damages
Expressly
Included
0%
(4% in deals in 2010)
(1% in deals in 2008)
Silent
25%
(23% in deals in 2010)
(52% in deals in 2008)
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Silent
44%
(39% in deals in 2010)
(49% in deals in 2008)
Expressly
Excluded
54%
(55% in deals in 2010)
(43% in deals in 2008)
Expressly
Excluded
75%
(73% in deals in 2010)
(47% in deals in 2008)
Private Target Study, slide 89
ADVANCE COPY release #1: 30Dec13
Indemnification
Baskets
Deductible
Sellers shall not be required to indemnify Buyer for Losses until the aggregate
amount of all such Losses exceeds $300,000 (the “Deductible”) in which
event Sellers shall be responsible only for Losses exceeding the
Deductible.
First Dollar
Sellers shall not be required to indemnify Buyer for Losses until the aggregate
amount of all such Losses exceeds $500,000 (the “Threshold”) in which
event Sellers shall be responsible for the aggregate amount of all Losses,
regardless of the Threshold.
Combination
Sellers shall not be required to indemnify Buyer for Losses until the aggregate
amount of all such Losses exceeds $500,000 (the “Threshold”) in which
event Sellers shall be responsible only for Losses in excess of $300,000
(the “Deductible”).
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 90
ADVANCE COPY release #1: 30Dec13
Indemnification
Baskets
(Subset: deals with survival provisions)
Deductible
59%
(59% in deals in 2010)
(47% in deals in 2008)
First Dollar
32%
(31% in deals in 2010)
(36% in deals in 2008)
No Basket
4%
(5% in deals in 2010)
(5% in deals in 2008)
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Combination
5%
(5% in deals in 2010)
(12% in deals in 2008)
Private Target Study, slide 91
ADVANCE COPY release #1: 30Dec13
Indemnification
Baskets as % of Transaction Value
(Subset: deals with baskets*)
1%
Deals in 2012
> 2%
Deals in 2010
11%
Deals in 2008
> 1% to 2%
32%
> 0.5% to 1%
56%
0.5% or less
* Excludes 5 deals with indeterminable or redacted basket amounts.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 92
ADVANCE COPY release #1: 30Dec13
Indemnification
Baskets as % of Transaction Value
(statistical summary)
(Subset: deals with baskets*)
Basket Type
Mean
Median
Minimum
Maximum
(> 0)
Deductible
First Dollar
All Baskets
(other than
Combination)
0.61%
0.50%
0.03%
2.50%
(0.66% in deals in 2010)
(0.80% in deals in 2008)
(0.65% in deals in 2010)
(0.66% in deals in 2008)
(0.04% in deals in 2010)
(0.20% in deals in 2008)
(1.67% in deals in 2010)
(5.00% in deals in 2008)
0.46%
0.40%
0.02%
1.60%
(0.59% in deals in 2010)
(0.47% in deals in 2008)
(0.56% in deals in 2010)
(0.45% in deals in 2008)
(0.08% in deals in 2010)
(0.02% in deals in 2008)
(1.57% in deals in 2010)
(1.19% in deals in 2008)
0.58%
0.50%
____
____
(0.65% in deals in 2010)
(0.66% in deals in 2008)
(0.65% in deals in 2010)
(0.55% in deals in 2008)
* Excludes 5 deals with indeterminable or redacted basket amounts.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 93
ADVANCE COPY release #1: 30Dec13
Indemnification
Baskets - General Coverage*
(Subset: deals with baskets**)
99%
Breaches of
Seller/Target Reps
and Warranties
27%
Breaches of
Seller/Target
Covenants
18%
Other Indemnity
Claims
Deals in 2012
Deals in 2010
Deals in 2008
* Carve outs for individual representations and warranties, fraud, and intentional breaches of representations and warranties
addressed on next slide.
** Excludes one deal with redacted basket coverage provision.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 94
ADVANCE COPY release #1: 30Dec13
Indemnification
Basket Carve Outs*
(Subset: deals with baskets)
59%
Broker's/Finder's Fees (Rep)
68%
Capitalization (Rep)
70%
Due Authority (Rep)
62%
Due Organization (Rep)
19%
Employee Benefits/ERISA (Rep)
Environmental (Rep)
Deals in 2012
12%
Deals in 2010
24%
No Conflicts (Rep)
Deals in 2008
34%
Ownership of Shares (Rep)
56%
Taxes (Rep)
Title to/Sufficiency of Assets (Rep)
15%
61%
Fraud
* Only those categories appearing more than 10% of the time for deals in 2012 are shown. Carve outs for breaches of
Seller/Target covenants taken into account on prior slide.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 95
ADVANCE COPY release #1: 30Dec13
Indemnification
Eligible Claim Threshold
(Subset: deals with baskets)
Sellers shall not be required to indemnify Buyer for any individual item
where the Loss relating to such claim (or series of claims arising from
the same or substantially similar facts or circumstances) is less than
$_______.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 96
ADVANCE COPY release #1: 30Dec13
Indemnification
Eligible Claim Threshold
(Subset: deals with baskets)
No Eligible Claim
Threshold
70%
(83% in deals in 2010)
(77% in deals in 2008)
Includes Eligible
Claim Threshold
30%
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 97
ADVANCE COPY release #1: 30Dec13
Indemnification
“Double Materiality” Scrape
(materiality qualification in reps disregarded)
Materiality qualification in reps disregarded for all indemnification-related purposes
For purposes of this Article VIII (Indemnification), the
representations and warranties of Target shall not be deemed qualified
by any references to materiality or to Material Adverse Effect.
Materiality qualification in reps disregarded for calculation of damages/losses only
For the sole purpose of determining Losses (and not for
determining whether or not any breaches of representations or
warranties have occurred), the representations and warranties of
Target shall not be deemed qualified by any references to materiality
or to Material Adverse Effect.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 98
ADVANCE COPY release #1: 30Dec13
Indemnification
“Double Materiality” Scrape
(materiality qualification in reps disregarded)
(Subset: deals with baskets)
Includes
"Double
Materiality"
Scrape
28%
Not Included
72%
(Subset: includes “double
materiality" scrape)
(51% in deals in 2010)
(76% in deals in 2008)
“Double Materiality” Scrape Limited
to Calculation of Damages/Losses Only?
No*
59%
(34% in deals in 2010)
(68% in deals in 2008)
* Includes agreements that are silent on this issue.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Yes
41%
Private Target Study, slide 99
ADVANCE COPY release #1: 30Dec13
Indemnification
Caps*
(Subset: deals with survival provisions)
Silent
4%
(7% in deals in 2010)
(8% in deals in 2008)
Yes - Less Than
Purchase Price
89%
(79% in deals in 2010)
(86% in deals in 2008)
Yes But Not
Determinable
2%
(7% in deals in 2010)
(2% in deals in 2008)
Yes - Equal to
Purchase Price
5%
(7% in deals in 2010)
(4% in deals in 2008)
*
Caps generally applicable to contractual indemnification obligations; does not take into account different caps for specific items
(see “Cap Carve Outs”).
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 100
ADVANCE COPY release #1: 30Dec13
Indemnification
Cap Amounts as % of Transaction Value*
(Subset: deals with determinable caps)
Deals in 2012
Mean
Median
Minimum
Maximum
16.6%
10.0%
2.7%
114.7%
48%
< 10%
12%
10%
29%
> 10% to 15%
4%
> 15% to 25%
> 25% to 50%
> 50% to < Purchase Price
Purchase Price
*
2%
Deals in 2012
Deals in 2010
0%
6%
Deals in 2008
Caps generally applicable to contractual indemnification obligations; does not take into account different caps for specific items
(see “Cap Carve Outs”). Percentages total 101% due to rounding.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 101
ADVANCE COPY release #1: 30Dec13
Indemnification
Cap Carve Outs*
(Subset: deals with caps)
49%
B ro ker' s/ F ind er' s F ees ( R ep )
63%
C ap it aliz at io n ( R ep )
65%
D ue A ut ho rit y ( R ep )
56%
D ue Org aniz at io n ( R ep )
Emp lo yee B enef it s/ ER ISA ( R ep )
16%
12%
Deals in 2012
12%
Deals in 2010
Enviro nment al ( R ep )
Int ellect ual Pro p ert y ( R ep )
21%
N o C o nf lict s ( R ep )
Deals in 2008
34%
Ownership o f Shares ( R ep )
52%
T axes ( R ep )
15%
T it le t o / Suf f iciency o f A sset s ( R ep )
79%
F r aud
Int ent io nal B reach o f Seller' s/ T arg et ' s R ep s
28%
28%
B reach o f Seller' s/ T arg et ' s C o venant s
*
Only those categories appearing 10% of the time or more for deals in 2012 are shown.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 102
ADVANCE COPY release #1: 30Dec13
Indemnification
Indemnification as Exclusive Remedy
(Subset: deals with survival provisions)
Non-Exclusive
Remedy
2%
(2% in deals in 2010)
(9% in deals in 2008)
Exclusive Remedy
94%
Silent
4%
(6% in deals in 2010)
(6% in deals in 2008)
(92% in deals in 2010)
(85% in deals in 2008)
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 103
ADVANCE COPY release #1: 30Dec13
Indemnification
Indemnification as Exclusive Remedy – Carve Outs
(Subset: deals with indemnification as exclusive remedy)
25%
Intentional
Misrepresentation
Deals in 2012
Deals in 2010
64%
Deals in 2008
Equitable Remedies
82%
Fraud
Breach of Covenant
13%
(Subset: includes fraud carve out)
Limited to "Actual
Fraud"
2%
Fraud Undefined
81%
(71% in deals in 2010)
(82% in deals in 2008)
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Limited to "Fraud
or Intentional Mis
representation"
9%
Limited to
Intentional Fraud
8%
Private Target Study, slide 104
ADVANCE COPY release #1: 30Dec13
Indemnification
Escrows/Holdbacks
(Subset: deals with survival provisions)
No
Escrow/Holdback
11%
(14% in deals in 2010)
(19% in deals in 2008)
Escrow/Holdback
is Not Exclusive
Remedy*
55%
(57% in deals in 2010)
(48% in deals in 2008)
Escrow/Holdback
is Exclusive
Remedy
32%
(24% in deals in 2010)
(27% in deals in 2008)
Escrow/Holdback
and Earnout
Setoff are
Exclusive
Remedies
2%
(4% in deals in 2010)
(6% in deals in 2008)
*
Includes deals that state that the escrow/holdback is the exclusive remedy but provide one or more exceptions.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 105
ADVANCE COPY release #1: 30Dec13
Indemnification
Escrows/Holdbacks as % of Transaction Value
(Subset: deals with determinable escrows/holdbacks)
10%
3% and less
22%
> 3% to < 5%
2%
5%
13%
> 5% to 7%
24%
> 7% to < 10%
5%
10%
18%
> 10% to 15%
4%
> 15% to 20%
> 20% to 25%
> 25%
1%
1%
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Deals in 2012
Deals in 2010
Deals in 2008
Private Target Study, slide 106
ADVANCE COPY release #1: 30Dec13
Indemnification
Escrows/Holdbacks as % of Transaction Value
(statistical summary)
(Subset: deals with determinable escrows/holdbacks)
Deals in:
Mean
Median
Minimum
Maximum
2012
7.83%
7.14%
0.41%
25.16%
2010
9.30%
9.19%
0.33%
27.34%
2008
10.51%
9.93%
1.23%
37.30%
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 107
ADVANCE COPY release #1: 30Dec13
Indemnification
Stand-Alone Indemnities
(items for which indemnification specifically provided regardless of
indemnification for breaches of representations and warranties)
(Subset: deals with survival provisions)
Deals in 2012
3%
ERISA
Deals in 2010
Deals in 2008
5%
Environmental
40%
Taxes
51%
Other*
27%
None
* Other frequently appearing stand-alone indemnities were inaccuracies on payment spreadsheets; excluded or retained liabilities;
and dissenters’ rights/dissenting share payment claims.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 108
ADVANCE COPY release #1: 30Dec13
Indemnification
Reductions Against Buyer’s Indemnification Claims
(Subset: deals with survival provisions)
Reduction for Tax Benefits
Reduction for Insurance Proceeds
Silent
52%
Expressly
Included
48%
(53% in deals in 2010)
(34% in deals in 2008)
Silent
56%
Silent
19%
Expressly
Included
81%
Express Requirement that
Buyer Mitigate Losses?
(85% in deals in 2010)
(68% in deals in 2008)
(72% in deals in 2010)
(77% in deals in 2008)
Yes
44%
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 109
ADVANCE COPY release #1: 30Dec13
Dispute Resolution
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 110
ADVANCE COPY release #1: 30Dec13
Dispute Resolution
Waiver of Jury Trial*
Waiver of Jury Trial
Provision Included
82%
(78% in deals in 2010)
(51% in deals in 2008)
No Waiver of Jury
Trial Provision
18%
(22% in deals in 2010)
(49% in deals in 2008)
* May include deals in jurisdictions where jury trials are not available or where waivers of jury trials are unenforceable.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 111
ADVANCE COPY release #1: 30Dec13
Dispute Resolution
Alternative Dispute Resolution (“ADR”)*
Includes
General
ADR
Provision
15%
No General
ADR
Provision
85%
(Subset: includes provision)
Mediation
5%
(0% in deals in 2010)
(5% in deals in 2008)
(82% in deals in 2010)
(65% in deals in 2008)
Binding
Arbitration
86%
Mediation then
Binding
Arbitration
9%
(11% in deals in 2010)
(3% in deals in 2008)
(89% in deals in 2010)
(92% in deals in 2008)
* ADR provisions that generally cover disputes under acquisition agreement (rather than those limited to specific disputes such as
purchase price adjustments or earnouts).
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 112
ADVANCE COPY release #1: 30Dec13
Dispute Resolution
Alternative Dispute Resolution (“ADR”)
(Subset: deals with general ADR provisions)
Specified Arbitrator(s)
Arbitration Expenses
Judicial
Arbitration &
Mediation
Services
40%
(28% in deals in 2010)
(43% in deals in 2008)
American
Arbitration
Association
Other
5%
(22% in deals in 2010)
(14% in deals in 2008)
(50% in deals in 2010)
(43% in deals in 2008)
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Determined
by
Arbitrator
10%
Evenly Split
40%
(28% in deals in 2010)
(27% in deals in 2008)
(0% in deals in 2010)
(30% in deals in 2008)
Expenses
Apportioned
15%
(6% in deals in 2010)
(5% in deals in 2008)
Silent
20%
Loser Pays
15%
(28% in deals in 2010)
(0% in deals in 2008)
(38% in deals in 2010)
(38% in deals in 2008)
Private Target Study, slide 113
ADVANCE COPY release #1: 30Dec13
Indemnification
Post-Closing Representation of Shareholders
In any dispute or proceeding arising under or in connection with this
agreement following the Closing, the Stockholders’ Representative will
have the right, at its election, to retain ABC LLP (the “Law Firm”) to
represent it in such matter. Buyer, for itself and the Target and for their
respective successors and assigns, hereby waives any conflicts of
interest arising from such representation and consents to any such
representation in any such matter.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 114
ADVANCE COPY release #1: 30Dec13
Dispute Resolution
Post-Closing Representation of Shareholders*
Express
Permission to
Represent
Target
Shareholders
Post-Closing
47%
(Subset: includes provision)
No Express
Permission
53%
Conflict Waiver
Required**
26%
(86% in deals in 2010)
No Waiver
Required
74%
(50% in deals in 2010)
* Includes deals structured as reverse triangular mergers only.
** Excludes deals with express conflict waivers by the parties to the merger agreement.
M&A Market Trends Subcommittee, Mergers & Acquisitions Committee, [ADVANCE COPY (LIMITED PREVIEW)]
Private Target Study, slide 115
ADVANCE COPY release #1: 30Dec13
Mergers & Acquisitions Committee
“Where the World’s Leading Dealmakers Meet”
The Mergers & Acquisitions Committee was founded in the late 1980s and has over 4,000 members, including
practitioners from all 50 states, five Canadian provinces and more than 53 different countries on five continents. The
Committee is home to the world’s leading merger and acquisition (M&A) attorneys and many other deal professionals
such as investment bankers, accountants, and consultants. In addition, over ten percent of committee membership
includes in-house counsel.
Market Trends Studies
Get state-of-the-art market metrics in negotiated acquisitions with the Committee’s benchmark studies covering not
only U.S. but also Canadian and EU deals. The studies, produced by the Committee’s M&A Market Trends
Subcommittee, have become essential resources for deal lawyers, investment bankers, corporate dealmakers, PE
investors, and others interested in “what’s market” for critical legal deal points in M&A. The Committee regularly
produces the Private Target Deal Points Study, the Strategic Buyer/Public Target Deal Points Study, the Private Equity
Buyer/Public Target Deal Points Study, the Canadian Private Target Deal Points Study, and the Continental Europe
Private Target Deal Points Study. The studies, as well as updates (and Update Alerts), are available free of charge to
Committee members only.
Knowledge and Networking
The Committee meets regularly three times a year at the ABA Annual Meeting, Section Spring Meeting, and a Fall
Committee Meeting.
All Committee materials and resources used in CLE programs on M&A-related topics presented both at ABA meetings
and in other forums are accessible to all members via the Section’s online Program Library. These programs bring
together panels of experienced M&A practitioners from law firms and corporate law departments, as well as those
in academia and others outside the legal profession who are experts in their field.
<<< Join the Committee! >>>
Committee membership is FREE for Business Law Section members.
For immediate enrollment in the Section and/or Committee go to www.ababusinesslaw.org, click on “Committees” on
the left navigation bar and click on “Mergers and Acquisitions” that will take you to the Committee webpage.

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