Houlihan Lokey Purchase Agreement Study 2017
The Houlihan Lokey Purchase Agreement Study 2017
Houlihan Lokey, a global investment bank, recently released its Purchase Agreement Study for 2017. This comprehensive study analyzes purchase agreements for M&A transactions in the United States and Europe from the previous year and provides insights into the current M&A landscape.
The study reviewed over 700 private target transactions, with values ranging from $25 million to over $1 billion. The report analyzed various aspects of purchase agreements, including indemnification provisions, representations and warranties, and material adverse change (MAC) clauses.
One key finding from the study is that parties are increasingly using representation and warranty insurance (RWI) to mitigate risk and protect against future liabilities. In fact, 35% of transactions analyzed in the study utilized RWI, up from 26% in the previous year.
Another interesting trend identified in the study is the growing use of “sandbagging” provisions. These provisions allow the buyer to recover damages even if they were aware of a breach of representation or warranty before closing the transaction. In the past, these provisions were more commonly used in Europe, but they are now becoming more prevalent in the U.S. as well.
The study also analyzed MAC clauses, which are used to allocate risk in the event of unforeseen events that could affect the value of the transaction. The report found that MAC clauses are being drafted more narrowly and that there is greater focus on the specific risks that are included.
Finally, the study noted an increase in the use of earnout structures in purchase agreements. Earnouts tie a portion of the purchase price to the future performance of the target company, often through financial metrics such as revenue or EBITDA. These structures are becoming more popular as buyers look for ways to align incentives and mitigate risks.
Overall, the Houlihan Lokey Purchase Agreement Study 2017 provides valuable insights for anyone involved in the M&A process. By understanding current trends and market practices, parties can better negotiate and structure transactions to achieve their desired outcomes.