Sat, Oct 25, 2014
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Private Equity Strategies

Tools of the Trade: Two-Thirds of Deals Have Material Closing Issues

Monday, May 20, 2013

By: Bailey McCann, Private Equity Strategies:

While indemnification claims, purchase price adjustments, earn-out achievement disputes, and other post-closing issues in private-target M&A transactions remain common, data from a new survey shows that claim resolution is becoming more efficient. According to the latest “M&A Post-Closing Claims Study,” from SRS | Shareholder Representative Services, two thirds of all deals had issues arise after closing, and one in five deals with claims had exposure exceeding half of the escrow.

The study analyzes post-closing issues and payouts across 420 private-target acquisitions, comprising $66.7bn in stated deal value with $6.7bn held in escrow and $9bn in potential earn-out consideration.

The study shows that earn-out milestones for technology and other deals outside of the life sciences sector were achieved 50% of the time, an improvement over previous years. However, claim activity across all types of deals is still frequent. Nearly 20% of expired-escrow deals saw a claim come in the last week of escrow. These claims are having a big impact, final escrow releases in nearly a third of expired-escrow deals get delayed due to outstanding claims, and the average time of those delays is 7 months.

Claims over breaches of representations and warranties are by far the most common, accounting for 57% of claims. Purchase price adjustment claims pursuant to a post-closing purchase price adjustment mechanism (e.g. working capital) were second with 27%. Tax claims became more frequent (26%) due to the average target being a more mature taxpayer. In addition, state and local governments have become more aggressive about revenue collection, especially for sales and use taxes.

Claims are also coming in multiples. Expired-escrow deals saw on average 3.6 claims, and those claims call for as much as 30% of escrow dollars. 20% of those claims ask for half or more of the escrow dollars.

Price adjustments are happening two thirds of the time. 72% of deals with a PPA mechanism had a post-closing purchase price adjustment.

 
This article was published in Opalesque's Private Equity Strategies our monthly research update on the global private equity landscape including all sectors and market caps.
Private Equity Strategies
Private Equity Strategies
Private Equity Strategies
Private Equity Strategies


Banner

Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Commodities - Oil wreaking havoc on small-cap energy stocks sliding 36%[more]

    From Bloomberg.com: Owning almost anything in the U.S. stock market has been a losing proposition since September. Owning smaller energy companies has been a catastrophe. Hercules Offshore Inc. and Resolute Energy Corp. are among 19 oil-and-gas equities in the Russell 2000 Index that lost more than

  2. Investing - Hedge funds favor equity long/short, Strategic bond managers hedge against further high yield sell-off[more]

    Hedge funds favor equity long/short From Securitieslendingtimes.com: Equity long/short strategies will generate good returns for hedge funds in the future, according to a panel at this year’s Risk Management Association Conference on Securities Lending in Naples, Florida. Panellists Sand

  3. Legal - Ex-hedge fund analyst weeps as judge hands down 5 year sentence, Former Columbus investment manager Steven P. Moore indicted on theft charges, SEBI confirms ban for Hong Kong hedge fund, SEC announces enforcement action against compliance officer[more]

    Ex-hedge fund analyst weeps as judge hands down 5 year sentence From Hereisthecity.com: An ex-hedge fund analyst was sentenced to 5 years in prison for his role in insider-trading scheme. The New York Post reports that former hedge fund analyst Matthew Teeple was sentenced Thursday to fiv

  4. Goldman in talks to acquire IndexIQ[more]

    From Bloomberg.com: Can Goldman Sachs put ETF investors on a liquid diet? Goldman is in talks to acquire IndexIQ, Reuters has reported. Index IQ is a small exchange-traded-fund firm known mostly for products that replicate hedge fund strategies, called "liquid alternative" ETFs. While IndexIQ has 11

  5. Other Voices: CALPERS dilemma should be a warning to hedge funds wanting institutional investors[more]

    From Ian Hamilton, founder of IDS Group. A quick comment on the CALPERS’ disinvestment from the hedge fund market and the jitters it is causing. Pension Funds should not be sheep and follow CALPERS’ decision as the issues that CALPERS has with hedge fund investments are in many ways unique t