SRS Acquiom recently released their 2024 M&A Deal Terms Study, which analyzes deal terms in 2,100+ private-target acquisitions valued at $475B that closed between 2018 and 2023. Below are a few key takeaways that we wanted to share:
- Purchase Price Adjustments (PPAs): From an accounting methodology perspective, for the first time, parties are shifting from GAAP consistent with past practices (56% of deals in 2021 to 36% in 2023) to a specific calculation methodology or schedule (26% of deals in 2022 to 35% in 2023). Furthermore, the percentage of deals with a PPA that include a separate escrow for the PPA has now reached a transaction value of 1.00%, rising from 0.67% in 2020.
- Closing Consideration Trends: All-cash deals are slowly on the rise, rising from 53% in 2022 to 58% in 2023, with cash/stock combinations declining from 25% in 2021 to 20% in 2023. This is attributable to more strategic deals vs. slower private equity market.
- Earnouts: The use of earnouts (in Non-Life Science deals) has increased with 1/3 of deals in 2023 including earnouts. That is more than a 50% increase in the use of earnouts year over year. In comparison, close to 1/5 of deals in the previous three years included earnouts. Of the deals with an earnout in 2023, 35% had a single trigger event while 65% had multiple trigger events. The median earnout length in 2023 was 24 months and the amount of contingent consideration rose slightly to 32%, up from 30% in 2022.
- Impact of Representation and Warranty Insurance (RWI) on Survival of Sellers’ Representations and Warranties: Over the last four years, the use of RWI has caused a decrease in the percentage of deals in which sellers’ representations and warranties survive closing (64% in 2023 and 2020, 49% in 2022, and 62% in 2021).
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