SAN FRANCISCO--(BUSINESS WIRE)--Entrepreneurs and investors who sell privately held companies face complex negotiations with outcomes that can have dramatic effects on net purchase consideration. SRS | Shareholder Representative Services today released a comprehensive report that stockholders and M&A attorneys can use to benchmark their deals. It is the first of its kind to analyze transactions where deal-specific terms were not publicly reported.
Sampled from the over 100 transactions in which SRS has served as the shareholder representative, the 2010 SRS M&A Deal Terms Study is an analysis of private-target acquisition agreements for deals from a variety of industries that closed between 2007 and 2010.
The study reveals that the post-closing period can often be long, risky and complex. Two-thirds of the surveyed deals called for setting aside a portion of the merger consideration in escrow for more than a year. Also, more than two-thirds of the deals analyzed allowed for possible changes to the final purchase price after the closing based on working capital adjustments. Even when the escrow period concludes, consideration is often still at risk. According to the study, 95% of deals have carve outs to the survival period so that certain types of claims can be brought well into the future.
“SRS has delivered a study that compliments the ABA Deal Points Studies with a different sample set,” said Craig Menden, Partner at SNR Denton. “The SRS Study presents statistics and charts similar to the flagship ABA Private Target Deal Points Study to permit useful comparisons, but because most agreements from the SRS Study are not publicly filed, it gives the M&A community a slightly different picture of the frequency and dynamics of various deal terms. Understanding these two studies together will provide value to those who are able to see beyond the numbers.”
SRS has posted a summary of the 2010 SRS M&A Deal Terms Study on its web site, www.shareholderrep.com.
Other highlights of the study include:
- In more than half of the deals analyzed, the amount of consideration put into escrow was more than 10% of the total merger consideration. In a 2007 study conducted by the American Bar Association (ABA), only one-quarter of the deals had escrows of more than 10%.
- 65% of deals included a “first dollar” basket, meaning the purchaser could recover all losses after meeting a certain threshold amount. In a 2005 study by the ABA, a majority of deals included a “deductible” basket requiring claims to be above a certain dollar or percentage amount.
- Half of the deals analyzed that included earnouts had earnout terms of three years or more, with nearly one-third (32%) calling for an earnout period of five years or more.
“Few firms see the variety and number of exits of VC-backed companies that SRS does,” said Lizette Perez-Deisboeck, General Counsel at Battery Ventures. “This makes their information highly relevant to the VC community and this study is just the tip of the iceberg.”
SRS | Shareholder Representative Services is the leading expert in professionally managing the post-closing process to safeguard selling shareholders' interests in M&A transactions. On deals valued in aggregate in excess of $10 billion, SRS represents more than 400 VC and private equity firms and over 10,000 shareholders in 44 countries. SRS has more knowledge and experience serving as a shareholder representative than anyone else. For more information, visit www.shareholderrep.com.