This is a summary of the Hotshot course “Indemnifiable Losses: Market Trends,” which features ABA M&A Committee members Leigh Walton from Bass, Berry & Sims and Scott Whittaker from Stone Pigman discussing market trends in how loss is defined in private M&A deals, drawing on data from the ABA M&A Committee’s 2020–21 Private Target M&A Deal Points Study. View the course here.
- The treatment of indemnifiable losses in publicly filed acquisition agreements was looked at in the 2021 ABA M&A Committee’s Private Target Deal Points Study.
- The study reviewed how loss is defined and looked at the types of damages included.
- The data shows that losses are rarely limited to out-of-pocket damages—only 6% of the time in 2020 to 2021.
- Most deals were silent on diminution in value—80% in the 2021 study.
- There was an increase in the number of deals that expressly excluded diminution in value. It was expressly excluded from:
- 9% of deals in the 2019 study; and
- 15% of deals in the 2021 study.
- There was an increase in the number of deals that expressly excluded diminution in value. It was expressly excluded from:
- 61% of deals in 2020 and 2021 were also silent on incidental damages.
- This was a decrease of 21 percentage points from the 2019 study.
- 27% of deals expressly excluded incidental damages.
- Punitive damages are routinely excluded.
- 82% of the deals in the 2021 study expressly excluded punitive damages, with 14% silent.
- With consequential damages, there was a decrease in the number of deals that were silent, from 65% in the 2019 study to 58% in 2021.
- 32% expressly excluded consequential damages, a figure that was up to over 50% at the beginning of the 2010s.
- The 2019 study was the first time that the deal points study analyzed the number of agreements that included recovery for lost profits and the number of agreements that allowed damages to be calculated based on a multiple.
- Since then, the study has shown that the majority of deals were silent on both these issues.
- One note about the percentages of deals that exclude consequential, incidental and punitive damages, and lost profits:
- The Deal Points studies do not analyze the number of deals that contain a common exception to that exclusion, which is that those types of damages are recoverable if they’re included in a third-party claim that’s covered by the indemnification provisions of the agreement.
The rest of the course includes interviews with ABA M&A Committee members Leigh Walton from Bass, Berry & Sims and Scott Whittaker from Stone Pigman Walther Wittmann.
