Sun, Feb 1, 2015
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. Opalesque Exclusive: Ex-Citi trader launches 'sleep-at-night’ long/short equity fund[more]

    Benedicte Gravrand, Opalesque Geneva for New Managers: After working at Citi's proprietary trading desk, managing a large portfolio between 2008 and 2011, Joel S. Salomon founded SalaurMor Management in New Yor

  2. Investing - U.S. investors favor currency hedged Europe ETFs as euro tumbles, Quants win back investors as Swiss franc fuels volatility gains, David Einhorn's $7bn hedge fund is loading up on this stock, Hedge fund BlueMountain Capital unveils Ocwen Financial short, claims default on notes[more]

    U.S. investors favor currency hedged Europe ETFs as euro tumbles From Reuters.com: U.S. investors stung by the falling euro who want to stay invested in Europe are turning to exchange-traded funds designed to strip out the impact of the region's currency. The biggest among so-called "cur

  3. News Briefs - Millennials use tech tools to jump into investing, Winklevoss twins to launch bitcoin exchange with FDIC insured deposits, Robertson’s legacy from hedge funds to New Zealand, Real estate managers exploring smaller open-end funds[more]

    Millennials use tech tools to jump into investing It is the Facebookification of monetary investing. From social networking platforms that enable young investors to stick to every other's stock-picking mojo, to internet sites for initially-timers hungry for a piece of the Silicon Valley

  4. Update: Prosecutors seek 12 years for hedge fund manager Francisco Illarramendi[more]

    Komfie Manalo, Opalesque Asia: Federal prosecutors have asked the court to sentence convicted hedge fund manager Francisco Illarramendi to 12 years imprisonment for running an elaborate Ponzi scheme that bilked investors hundreds of millions in dollars, including a Venezuelan pension fund, report

  5. Institutions - Ontario pension fund leader calls all asset classes ‘expensive’, Taiwan's BLF plans $2bn in alternative mandates[more]

    Ontario pension fund leader calls all asset classes ‘expensive’ From WSJ.com: The head of one of the world’s largest pension funds said that across asset classes, “everything is expensive.” Ron Mock, who leads Canada’s $141 billion Ontario Teachers’ Pension Plan, said that the plan would