The "seller-friendly" dynamic in European M&A transactions strengthened during 2018, notwithstanding a drop-off in volumes towards the end of the year. This comes in marked contrast to the US market, where risk allocation continues to favour the buyer.

These conclusions were published by CMS in the 11th edition of its annual European M&A Study, a multi-year analysis of the key legal provisions within M&A agreements. The study is the most comprehensive of its kind and is based on a proprietary database comprising more than 4,000 deals over a 12-year period. 

Stefan Brunnschweiler, Head of the CMS Corporate/M&A Group, said: “Brexit and wider geopolitical challenges are weighing on European M&A. Yet while volumes have tailed off, we’re still seeing a sellers’ market when it comes to the terms of completed deals. In our view, this won’t change. Buyers remain hungry for growth and when they see opportunities, they want to capitalise on them.”

Key findings of the report include:

  • Decreased use of purchase price adjustments (PPA) – around 44 percent of deals included a PPA compared with 48 percent in 2017. This represents a notable movement against the overall trend in recent years
  • Significant increase in the application of locked box structures – of the deals that did not involve a PPA, 59 percent used a locked box in 2018 which represents a significant increase over the 49 percent in 2017
  • Earn-outs continue to grow in popularity – there was a two-percentage point year on year increase in the use of earn-outs in 2018. A quarter of small and mid-cap deals now involve earn-outs
  • A record year for Warranty & Indemnity (W&I) insurance –sellers are increasingly offloading their warranty exposure by pre-packaging a buyer’s W&I policy. Nearly a third (30 percent) of deals valued over EUR 100m now involve this form of insurance

Regional differences

France has the lowest use of seller liability caps and applies de minimis and basket provisions on fewer transactions proportionately than the rest of Europe. However, the use of these provision has increased dramatically in the UK.

The concept of data room disclosure has not become widely adopted in Southern Europe. Only 7 percent of transactions in the region reflect such a provision compared with 74 percent for the Benelux and 61 percent for the UK.

CEE leads in the use of MAC clauses (an increase this year) and continues to apply more arbitration than other European jurisdictions. Once again, the German-speaking countries reflect their geographic setting and sit in the middle on most risk allocation issues.

In contrast to Europe, the US is a buyer’s market. This is reflected in a much more frequent application of purchase price adjustments and MAC clauses.

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For more information and/or interviews, please contact:

Darina Gordienko

CMS Cameron McKenna Nabarro Olswang 3913377
Notes to editors:

About CMS

Founded in 1999, CMS is a full-service top 10 international law firm, based on the number of lawyers (Am Law 2016 Global 100). With more than 70 offices in over 40 countries across the world and employing more than 4,500 lawyers, CMS has longstanding expertise both in advising in its local jurisdictions and across borders. From major multinationals and mid-caps to enterprising start-ups, CMS provides the technical rigour, strategic excellence and long-term partnership to keep each client ahead whatever its chosen markets. Revenues totalled EUR 1,3bn in 2017.

CMS provides a wide range of expertise across 19 expert practice and sector areas, including Corporate/M&A, Energy, Funds, Lifesciences, TMC, Tax, Banking and Finance, Commercial, Competition & EU, Dispute Resolution, Employment & Pensions, Intellectual Property and Real Estate & Construction.

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