Revealed – latest global key M&A trends

Mergers and acquisitions (M&A) deal terms remained favourable to sellers in the second half of 2022 (H2 2022), according to DLA Piper’s latest annual Global M&A Intelligence Report.

The report outlines the most recent trends in private M&A deals based on the firm’s database of over 5,000 transactions.

It found that buyers were not benefitting from improved deal terms in H2 2022 in the way they typically do during slowdowns in M&A. Meanwhile, sellers started focusing on completion protection measures in response to the increase in risk of broken deals.

“Our data indicates that, despite some global trends, key differences persist between different jurisdictions. For example, US deals continue to have more outs for a buyer before closing than in Europe or Australia and warranties are typically repeated at closing on deals in the US and Australia, whereas in Europe and Asia, repetition of warranties is less common,” said Jyoti Singh, corporate partner at DLA Piper.

Other key findings include:

• Global markets generally are seller friendly, although the US’s approach is significantly more balanced between buyers and sellers;
• The terms of large deals differ from the terms in smaller deals in some key respects: A large deal is more likely to proceed by way of auction, more likely to have a locked box mechanism, and more likely to have a gap between signing and closing. Meanwhile, smaller deals see more earn-outs and sellers are more likely to be tied into restrictive covenants;
• A continuing trend shows sellers as the real winners on deal terms in auction processes. Sellers get shorter limitation periods, lower caps on liability, are more likely to have a certain deal from signing, and are less likely to have to give restrictive covenants; and
• In one of the signs of M&A practices evolving around the globe, the locked box mechanism, which was once a rarity outside of the UK and some European markets, has become widely used in most markets other than in the US.

Warranty and indemnity insurance

DLA Piper’s report found that the number of organisations considering the use of warranty and indemnity “deal” insurance remained relatively steady in the US during H2 2022. It further found a slight decrease in the UK and Europe, but a continued increase in the APAC region.

“This growth seemed to be driven by the market entry by UK insurers into APAC and buyers becoming more sophisticated in their use of the product including certain enhancements, such as specific tax or environmental risk policies, US-style underwriting and policies in markets other than the US, fully synthetic policies, and enhanced limitation periods,” Singh said. “Despite the market slowing, new players continue to enter the warranty and indemnity insurance market, which shows that the product continues to show signs of growth.”

DLA Piper corporate partner Joel Cox added that M&A deal activity has weakened more recently.

“It will be interesting to see how deal terms change as buyers and sellers react to this, despite this not having played out in our study yet,” he said. “Our view is that any change will be very gradual as seller friendly deal terms have become pretty entrenched. But we are seeing earn-outs and equity rollovers have continued to be a key feature of technology M&A in the region.

“While earn-outs are seen in trade sales, private equity funds focused on software almost always require key managers to continue with a meaningful stake rolled over following a buyout.”