As chairs of the American Bar Association’s Private Target Mergers & Acquisitions Deal Points Study (the Private Target Deal Points Study), we are pleased to announce that we published the latest iteration of the study to the ABA’s website on December 18, 2023.
Congratulations! But Wait. What Exactly Is This Private Target Deal Points Study, Anyway?
The Private Target Deal Points Study is a publication of the Market Trends Subcommittee of the ABA Business Law Section’s M&A Committee. It examines the prevalence of certain provisions in publicly available private target mergers and acquisitions transactions during a specified time period. The Private Target Deal Points Study is the preeminent study of M&A transactions, widely utilized by practitioners, investment bankers, corporate development teams, and other advisors.
The 2023 iteration of the Private Target Deal Points Study analyzes publicly available definitive acquisition agreements for transactions executed and/or completed either during calendar year 2022 or during the first quarter of calendar year 2023. In each case, the transaction involved a private target acquired by a public buyer, with the acquisition material enough to that public buyer for the Securities and Exchange Commission to require public disclosure of the applicable definitive acquisition agreement.
The final sample examined by the 2023 Private Target Deal Points Study is made up of 108 definitive acquisition agreements and excludes agreements for transactions in which the target was in bankruptcy, reverse mergers, and transactions otherwise deemed inappropriate for inclusion.
Although the deals in the 2023 Private Target Deal Points Study reflect a broad array of industries, the health care and technology sectors together made up nearly one-third of the deals. Asset deals comprised 18% of the study sample, with the remainder either equity purchases or mergers.
Of the 2023 Private Target Deal Points Study sample, 26 deals signed and closed simultaneously, whereas the remaining 82 deals had a deferred closing some time after execution of the definitive acquisition agreement.
The transactions analyzed in the 2023 Private Target Deal Points Study were in the “middle market,” with purchase prices ranging between $30 million and $750 million; purchase prices for most deals in the data pool were below $200 million.
The Private Target Deal Points Study Sounds Great! How Can I Get a Copy?
- All members of the M&A Committee of the Business Law Section received an email alert from Jessica Pearlman with a link when the study was published. If you are not currently a member of the M&A Committee but don’t want to miss future email alerts, committee membership is free to Business Law Section members, and you can sign up on the M&A Committee’s homepage.
- ABA members who are not currently members of the Business Law Section can sign up to join on the Section’s membership webpage.
- The published 2023 Private Target Deal Points Study is available for download by M&A Committee members from the Market Trends Subcommittee’s Deal Points Studies page on the ABA’s website. Also available at that link are the most recently published versions of the other studies published by the Market Trends Subcommittee, including the Canadian Public and Private Target M&A Deal Points Studies, European Private Target M&A Deal Points Study, US Public Target Deal Points Study, and Strategic Buyer/Public Target M&A Deal Points Study.
How Does the 2023 Private Target Deal Points Study Differ from the Prior Version?
The 2023 version of the Private Target Deal Points Study has a number of features that differentiate it from prior iterations.
- A new elegant look and feel. We thought it was time for a refresh on fonts and color scheme, and we utilized gray for prior study data to help current-year data stand out more.
- New data points and correlations. We didn’t think we had enough work on our plates, so we added new data points and correlations throughout. Look for the “new data” flags (see samples below) to make them easy to spot.
New Representations and Warranties Insurance (RWI) correlations. We’ve taken a large number of existing data points throughout the study and correlated those points by deals that reference use of reps and warranties insurance, so you can see how that changes things.
#MeToo nuances. Based on input from Ally Coll of The Purple Campaign, we have included a more nuanced look at #MeToo representations. 57% of all transactions analyzed in the 2023 Study included a stand-alone #MeToo representation, as compared to 37% of deals in the 2021 Study pool. The new nuanced data points that we added measure whether the representation includes language regarding corrective action (5% of #MeToo representations in our data set do), settlement agreements (74% of #MeToo representations in our data set do, with 11% qualified by the knowledge of the party making the representation), or allegations of sexual harassment (all #MeToo representations in our data set do, with 37% so knowledge-qualified).
Closer looks at fraud carve-outs. We wanted to see how often a deal that had an express fraud carve-out to the non-reliance provision also had such a carve-out to the exclusive remedy provision, so we added a new slide exploring just that. Likewise we added a new data point for how often the fraud carve-out to the exclusive remedy provision is limited to fraud as to the reps/transaction documents.
Breach of covenants as stand-alone indemnity. We have added to this year’s Study a data point on how often breach of covenants appears as a stand-alone basis for indemnification. Interestingly, not all deals included breach of covenants as a stand-alone indemnity—only 94% had this formulation.
- RWI: The use of RWI decreased for the first time since we have been measuring this data point but maintained a majority position. During the period covered by the 2023 Study, 55% of deals referenced RWI (our proxy for whether a transaction utilized RWI), as compared to 65% of the deals during the period covered by the 2021 Study.
- Earnouts: Earnouts became more prevalent and displayed some buyer-friendly features. Use of earnouts increased significantly—by 30% (i.e., from 20% during the period covered by the 2021 Study to 26% during the period covered by the 2023 Study). Earnouts are often used to address valuation gaps, and this data point suggests growing valuation gaps during the period covered by the 2023 Study (2022 and Q1 2023).
- Anti-Sandbagging: Express anti-sandbagging provisions decreased. The percentage of deals that were silent with respect to sandbagging continued to increase, to 76% in the 2023 study as compared to 68% in the 2021 Study and 59% in the 2019 Study. As a reminder, silence may have a different effect under the laws of different states, so the parties need to consider the effect of being silent under applicable law.
Please join us in extending a huge thank-you to everyone who worked so hard on this study, from leadership to advisors to issue group leaders to the working groups, all of whom are listed in the credits pages.
For more information, there will be an In the Know webinar with the Chairs and Issue Group Leaders providing analysis and key takeaways from the results of the Private Target M&A Deal Points Study—details on time/date to follow.
