Sun, Dec 21, 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


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. Investing - Big hedge funds win again on PetSmart, Riverbed, RBS sells real estate loans to hedge fund Cerberus, Talisman energy speculation: Which hedge funds could benefit?[more]

    Big hedge funds win again on PetSmart, Riverbed From CNBC.com: Another week, another set of wins for activist investors. On Sunday, pet supply retailer PetSmart agreed to the largest leveraged buyout of the year at $8.7 billion. Hedge fund firm JANA Partners had been pushing for a sale a

  2. Outlook - Hedge fund manager who remembers 1998 rout says prepare for pain, Bond guru Bill Gross predicts U.S. economic growth to dip to 2%[more]

    Hedge fund manager who remembers 1998 rout says prepare for pain From Bloomberg.com: Stephen Jen landed in Hong Kong in early January 1997 as Morgan Stanley’s newly minted exchange-rate strategist for Asia. He was soon working around the clock when investors began targeting the region’s

  3. Investing - Hedge funds get boost from healthcare in 2014, Paulson & Co takes stake in Salix on heels of inventory issues[more]

    Hedge funds get boost from healthcare in 2014 From Valuewalk.com: The healthcare sector started the year on a turbulent note, as stocks of many major biotechnology companies were battered. However, most of the players in this sector have bounced back. The BarclayHedge Healthcare & Biotec

  4. Opalesque Exclusive: U.S. legal receivables fund launched in August[more]

    Benedicte Gravrand, Opalesque Geneva for New Managers: Investing in asset-backed receivables is a strategy that has been an integral part of the alternative investment space within the overall fixed income asset c

  5. Comment - High fees and low performance hit hedge funds[more]

    From FT.com: Disenchantment over high fees and lackluster performance may finally be turning the tide against hedge funds, fresh data suggest. Despite generally weak returns since the global financial crisis, hedge funds have enjoyed positive net inflows every year since 2010. This helped assets und