Professional Documents
Culture Documents
Private Target
Mergers & Acquisitions Deal Points Study
Subcommittee Co-Chairs
Wilson Chu, Haynes and Boone, LLP
Larry Glasgow, Gardere Wynne Sewell, LLP
Subcommittee Vice Chairs
Keith A. Flaum, Cooley Godward Kronish LLP
J. Freek K. Jonkhart, Loyens & Loeff
DISCLAIMERS
The findings presented in this Study do not necessarily reflect the personal views of the
Working Group members or the views of their respective firms. In addition, the
acquisition agreement provisions that form the basis of this Study are drafted in many different
ways and do not always fit precisely into particular “data point” categories. Therefore, Working
Group members have had to make various judgment calls regarding, for example, how to
categorize the nature or effect of the provisions. As a result, the conclusions presented in this
Study may be subject to important qualifications that are not expressly articulated in this Study.
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 2
2007 Private Target Study Working Group
CO-CHAIRS
Wilson Chu Larry Glasgow
Haynes and Boone LLP Gardere Wynne Sewell LLP
Dallas, TX Dallas, TX
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 3
2007 Private Target Study Working Group
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 4
2007 Private Target Study Working Group
Cindy Lin Matthew Martin Albert McGrath
Selman Munson & Lerner P.C. Husch & Eppenberger, LLC Baker & McKenzie LLP
Austin, TX Chattanooga, TN Dallas, TX
Rick McMillan Craig Menden Samuel Mullin
Jones, Walker, Waechter, Poitevent, Fenwick & West LLP Robinson & Cole LLP
Carrère & Denègre, L.L.P. Mountain View, CA Boston, MA
New Orleans, LA
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 5
2007 Private Target Study Sample Overview
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 6
2007 Private Target Study Sample Overview
(by transaction value)
$25M - $50M
39.9%
$51M - $100M
23.1%
$401M - $500M
2.8%
$301M - $400M
$101M - $200M
8.4%
18.2%
$201M - $300M
7.7%
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 7
2007 Private Target Study Sample Overview
(by industry)
Industrial Goods
& Services Financial Services
13.2% 8.4%
Aerospace
& Defense
6.3%
Personal &
Health Care Household Goods
15.4% 6.3%
Construction
& Materials
4.9%
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 8
2007 Private Target Study Sample Overview
(nature of principal sellers)
Financial
34.3%
Indeterminate
1.4%
Corporate
14.0%
Entrepreneurial
50.3%
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 9
Contents
I. Financial Provisions ………………………………………………………………………...Slide 11
A. Post-Closing Purchase Price Adjustments
B. Earnouts
II. Target’s Representations and Warranties………………………………………………...Slide 20
A. Financial Statements (“Fair Presentation”; Internal Controls and Accuracy and Completeness)
B. “No Undisclosed Liabilities”
C. Compliance with Law
D. “10b-5/Full Disclosure”
III. Conditions to Closing………….…………………………………………………………….Slide 36
A. Accuracy of Target’s Representations
B. Buyer’s MAC Condition
C. No Legal Proceedings
D. Legal Opinions
IV. Indemnification ………….…………………………………………...................................Slide 48
A. Survival/Time to Assert Claims
B. Liability of Multiple Indemnitors
C. Types of Damages/Losses Covered
D. Baskets
E. Caps
F. Indemnification as Exclusive Remedy
G. Escrows/Holdbacks
H. Stand-Alone Indemnities
I. Setoffs/Mitigation
V. Dispute Resolution …………...…........………………………………………..................Slide 77
A. Governing Law
B. Venue
C. Waiver of Jury Trial
D. Alternative Dispute Resolution
Supplements to Come:
Pervasive Qualifiers (MAE, Knowledge, Efforts Standards); Reliance; No Shop Covenant
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 10
Financial Provisions*
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 11
Financial Provisions
Includes
Adjustment Adjustment Metrics*
68%
Earnings 4%
Debt 20%
Assets 15%
Cash 13%
Other 27%
* 29% of the post-closing purchase price adjustments were based on more than one metric
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 12
Financial Provisions
Includes
Payment
Based on
Seller's
Estimated
Closing Date
Financial
Metric(s)
64%
No Estimated
Adjustment at
Closing (Subset: includes estimated closing payment)
36%
Includes
Buyer's
Right to
Approve
No Express Estimated
Right by Adjustment
Buyer to 34%
Approve
Estimated
Adjustment
66%
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 13
Financial Provisions
Purchase Price
Adjustment Paid
Only If Exceeds
Threshold
10%
Purchase Price
Adjustment
Amount Need
Not Exceed a
Threshold
90%
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 14
Financial Provisions
Buyer Other
79% Seller 3%
13% Silent
2%
Not Deter-
minable
GAAP 4%
Other
Consistent
7% GAAP
Not Deter- with Past or
Scheduled 14%
minable
1% Practices
72%
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 15
Financial Provisions
Downward
Adjustment
Not Deter- Paid from
minable Indemnity
1% Escrow
55%
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 16
Financial Provisions
Earnouts
No
Earnout
Includes
81%
Earnout
19%
Earnout Metrics*
Revenue/Turnover 30%
Earnings/EBITDA 37%
Other** 26%
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 17
Financial Provisions
Earnouts –
Buyer’s Covenants as to Acquired Business
(Subset: deals with earnouts)
Earnout
63%
Neither Covenant
7%
Not Determinable
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 18
Financial Provisions
Earnouts –
Acceleration and Offsets
(Subset: deals with earnouts)
Earnout Does
Not Accelerate No Offset
on Change of Provision
Control 37%
85%
Earnout
Accelerates on
Buyer Can
Change of
Offset
Control
Indemnity
11%
Payments
Against
Earnout Not
Not 52% Determinable
Determinable 11%
4%
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 19
Target’s Representations and Warranties
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 20
Target’s Representations and Warranties
Financial Statements –
“Fair Presentation” Representation
“Fairly presents” is GAAP qualified
Such financial statements fairly present (and the financial statements delivered
pursuant to Section 5.8 will fairly present) the financial condition and the results
of operations, changes in shareholders’ equity and cash flows of [Target] as at
the respective dates of and for the periods referred to in such financial
statements, all in accordance with GAAP.
(ABA Model Asset Purchase Agreement)
[T]he Financial Statements: (i) have been prepared from the books and records
of the Company in accordance with US GAAP consistently applied during the
periods covered thereby (except as otherwise disclosed therein); (ii) are
complete and correct in all material respects; and (iii) fairly present in all
material respects the financial position and the results of operations of the
Company (on a consolidated basis) as of the dates and during the periods
indicated therein…
(Hologic, Inc. acquisition of Suros Surgical Systems, Inc. )
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 21
Target’s Representations and Warranties
Financial Statements –
“Fair Presentation” Representation
Deals in 2006
1%
Deals in 2004
Not Included
2%
24%
"Fairly Presents" is GAAP
Qualified
14%
75%
"Fairly Presents" is Not GAAP
Qualified 84%
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 22
Target’s Representations and Warranties
Financial Statements –
Internal Controls and Accuracy and Completeness
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 23
Target’s Representations and Warranties
Financial Statements –
Internal Controls and Accuracy and Completeness
Includes
Includes Accurate
Internal and
Controls Complete
Rep Component
45% (32% in deals in 2004) 31%
No Accurate
No Internal and
Controls Complete
Rep Component
55% 69%
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 24
Target’s Representations and Warranties
Financial Statements –
Basis of Internal Controls Representation
Regulation S-K, Item 601:
To the Company’s Knowledge, there does not exist (i) any significant deficiency in the design or operation
of internal controls which could adversely affect the Company’s or any Subsidiary’s ability to record,
process, summarize and report financial data….
(EFJ Inc. acquisition of 3E Technologies International Inc.)
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 25
Target’s Representations and Warranties
Financial Statements –
Basis of Internal Controls Representation
(Subset: deals with representation)
Regulation S-K
Other
Item 601
15%
9%
Rules 13(a)-(f),
etc.
14%
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 26
Target’s Representations and Warranties
“Liability”--with respect to any Person, any liability or obligation of such Person of any kind,
character or description, whether known or unknown, absolute or contingent, accrued or
unaccrued, disputed or undisputed, liquidated or unliquidated, secured or unsecured, joint or
several, due or to become due, vested or unvested, executory, determined, determinable or
otherwise, and whether or not the same is required to be accrued on the financial statements of
such Person.
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 27
Target’s Representations and Warranties
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 28
Target’s Representations and Warranties
"GAAP
Liabilities"
(Subset: includes rep) (Target
Favorable)
32%
Includes Rep
93%
(92% in deals in 2004)
"All
Liabilities"
(Buyer
Favorable)
68%
(66% in deals in 2004)
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 29
Target’s Representations and Warranties
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 30
Target’s Representations and Warranties
Knowledge Qualified 7%
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 31
Target’s Representations and Warranties
Includes
Rep
99%
Knowledge 10%
Qualified
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 32
Target’s Representations and Warranties
Qualified by No Materiality
MAE Qualifier
23% 22%
Qualified by
Materiality
(undefined)
55%
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 33
Target’s Representations and Warranties
Seller does not have Knowledge of any fact that has specific application to
Seller (other than general economic or industry conditions) and that may
materially adversely affect the assets, business, prospects, financial
condition or results of operations of Seller that has not been set forth in this
Agreement or the Disclosure Letter.
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 34
Target’s Representations and Warranties
Rep Not
Included
38%
(41% in deals in 2004)
"10(b)-5"
AND Full
Disclosure
Formulation
10%
"10(b)-5" Knowledge
Formulation Qualified
Only 26%
52%
Not Knowledge
Qualified
74%
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 35
Conditions to Closing*
* Disregards the study sample’s 12% of deals (compare: 16% for deals in 2004) that
are “simultaneous sign-and-close”
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 36
Conditions to Closing
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 37
Conditions to Closing
Includes "Bring
Includes
Down"
"When Made"
Requirement
Requirement
60% 99%
(98% in deals in 2004)
* Includes deals with both “when made” and “bring down” requirements and deals solely with a “bring down” requirement
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 38
Conditions to Closing
* Includes deals with both “when made” and “bring down” requirements and deals solely with a “bring down” requirement
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 40
Conditions to Closing
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 41
Conditions to Closing
Silent
29%
Silent
25%
Disregards
"double
Disregards materiality"
"double 75%
materiality"
71%
(59% in deals in 2004)
* Includes deals with both “when made” and “bring down” requirements and deals solely with a “bring down” requirement
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 42
Conditions to Closing
Stand-Alone:
Since the date of this Agreement, there has not been any
Target Material Adverse Change.
“Back-Door”:
“absence of changes” representation
Since the Balance Sheet Date, there has not been any
Target Material Adverse Change.
plus
“Bring Down” formulation of “Accuracy of
Representations” condition
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 43
Conditions to Closing
No Stand-Alone
MAC Condition*
22%
Stand-Alone MAC
Condition
78%
(75% in deals in 2004)
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 44
Conditions to Closing
No Legal Proceedings
(“stand-alone”)
Condition Not
Included
38%
Includes No Legal
Proceedings
Condition
62%
No Legal
Proceedings
Related to the
Transaction
76%
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 45
Conditions to Closing
No Legal Proceedings
(“stand-alone”)
(Subset: deals including closing condition of no legal proceedings)
MAE
Qualified
22%
Pending No
Proceedings Dollar
Materiality
Only Amount
Qualifier
35% Qualified
56%
2%
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 46
Conditions to Closing
Not Required**
30%
Required*
70%
(73% in deals in 2004)
* Typically as a condition to closing, but includes opinions required in a “Closing Deliveries” covenant
**Does not account for opinions that may have been required or delivered outside of the express terms of the agreement
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 47
Indemnification*
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 48
Indemnification
10.1 SURVIVAL…
All representations, warranties … in this Agreement, the Disclosure Letter,
the supplements to the Disclosure Letter, the certificate delivered pursuant
to Section 2.4(a)(v), and any other certificate or document delivered
pursuant to this Agreement will survive the Closing…
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 49
Indemnification
1%
Silent
4%
Express No Survival
6 months 1%
1%
> 7 to < 12 months
26%
12 months
9%
> 12 to < 18 months
34%
18 months
3%
> 18 to < 24 months
16%
24 months
5%
> 24 months
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 50
Indemnification
* Matters subject to carveouts typically survive longer than time periods generally applicable to representations
* Only those categories appearing 10% of the time or more for deals in 2006 are shown
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 51
Indemnification
Silent
24% Joint and
Several
41%
Several But
Not Joint
("Pro Rata")
35%
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 52
Indemnification
Not Limited
to "Out of Excludes
Pocket" Diminution in
97% Value Silent
10% 65%
Limited to Includes
"Out of Diminution in
Pocket" Value
3% 25%
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 53
Indemnification
Includes
Includes Consequent-
Incidental ial Damages
Damages 6%
5%
Punitive Damages
Excludes
Silent
Punitive
63%
Damages
34%
Includes
Punitive
Damages
3%
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 54
Indemnification
Baskets – Deductible
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 55
Indemnification
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 56
Indemnification
Baskets – Combination
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 57
Indemnification
Baskets
(Subset: deals with survival provisions)
Combination No Basket
7% 3% (4% in deals in 2004)
(3% in deals in 2004)
Deductible
54%
(56% in deals in 2004)
First Dollar
36%
(40% in deals in 2004)
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 58
Indemnification
2%
Deals in 2006
> 2% 4%
Deals in 2004
8%
> 1% to 2%
7%
28%
> 0.5% to 1%
49%
62%
0.5% or less
40%
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 59
Indemnification
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 60
Indemnification
Basket Coverage
Breaches of 100%
Representations and
Warranties
55%
Breaches of Covenants
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 61
Indemnification
Basket Carveouts*
55%
Fraud 41%
52%
Capitalization (Rep) 21%
47%
Due Authority (Rep)
11%
42%
Taxes (Rep) 26%
32%
Ownership of Shares (Rep) 8%
31%
Intentional breach of Seller's/Target's Reps
18%
31%
Due Organization (Rep)**
Deals in 2006
22%
Breach of Seller's/Target's Covenants 11%
20% Deals in 2004
Broker's/Finder's Fees (Rep) 14%
* Only those categories appearing 10% of the time or more for deals in 2006 are shown
**No data for 2004
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 62
Indemnification
Seller shall not have any liability under this Section 10 for any
breach of any representation or warranty contained in this
Agreement or any Ancillary Agreement executed and delivered by
Seller or any covenant of Seller contained in this Agreement to be
performed at or prior to the Closing, and no claims by the Buyer
Indemnified Parties shall be so asserted, for any individual item
where the Loss relating to such claim (or series of claims arising
from the same or substantially similar facts or circumstances) is less
than $[X]…
(Church & Dwight Co., Inc.’s acquisition of Orange Glo International, Inc.)
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 63
Indemnification
No Eligible Claim
Threshold
82%
Includes Eligible
Claim Threshold
18%
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 64
Indemnification
“Double Materiality”
(materiality qualification disregarded for indemnification purposes)
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 65
Indemnification
“Double Materiality”
(materiality qualification disregarded for indemnification purposes)
(Subset: deals with baskets)
Double
Materiality
Expressly
Disregarded
22%
Double
Materiality
Not Expressly
Disregarded
78%
(86% in deals in 2004)
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 66
Indemnification
Caps*
(Subset: deals with survival provisions)
Yes - Equal to
Purchase Price
7%
(14% in deals in 2004)
* Caps generally applicable to contractual indemnification obligations; does not take into account different caps for
specific items (see “Cap Carveouts”)
** Of deals with determinable caps, 44% equaled the escrow amount
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 67
Indemnification
26%
< 10% 28%
21%
10%
15%
17%
> 10% to 15% 27%
17%
> 15% to 25% 14%
5%
> 25% to 50% Deals in 2006
12%
9%
Purchase Price
6%**
* Caps generally applicable to contractual indemnification obligations; does not take into account different caps for
specific items (see “Cap Carveouts”)
** Includes one deal with cap in amount greater than purchase price
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 68
Indemnification
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 69
Indemnification
Cap Carveouts*
(Subset: deals with expressly stated cap)
12%
E m p loyee Ben ef its/E RIS A ( Rep ) * *
10%
T itle to/S u f f icien cy of Assets ( Rep ) * *
*Only those categories appearing 10% of the time or more for deals in 2006 are shown
**Less than 10% for deals in 2004
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 70
Indemnification
Non-Exclusive
Remedy
13%
Silent
10%
Exclusive Remedy
77%
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 71
Indemnification
40%
Deals in 2006
Intentional
Misrepresentation 29%
Deals in 2004
45%
Equitable
Remedies 27%
81%
Fraud
85%
17%
Breach of
Covenant 18%
(Subset: includes fraud carveout)
Fraud
Limited to
"Actual" or
Intentional
Fraud or
Intentional
Misrep.
8%
Fraud
Undefined
92%
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 72
Indemnification
Escrows/Holdbacks
(Subset: deals with survival provisions)
Escrow/
No Escrow/ Holdback is
Holdback Exclusive
Combination of 13% Remedy
Cash and 32%
Securities
10%
All Stock or
Other Securities
15% Escrow/
All Cash Escrow/ Holdback and
75% Holdback is Earnout is
Not Exclusive Exclusive
Remedy Remedy
51% 4%
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 73
Indemnification
3% and less 8%
5% 5%
> 5% to 7% 12%
10% 21%
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 74
Indemnification
Stand-Alone Indemnities
(items for which indemnification specifically provided regardless of
indemnification for breaches of representations and warranties)
(Subset: deals with survival provisions)
ERISA 4%
Environmental 10%
Taxes 31%
Other* 51%
None 31%
* “Other” frequently appearing stand-alone indemnities were items disclosed on a schedule; excluded liabilities; pre-
closing liabilities; dissenters’ rights/dissenting share payment claims; and transaction expenses.
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 75
Indemnification
Setoffs/Mitigation
(reduction of Buyer’s indemnification claims)
(Subset: deals with survival provisions)
No
Express
Setoff for
Insurance
Proceeds
No Includes 37%
Express Express
Setoff for Setoff for
Tax Tax
Benefits Benefits
69% 31%
Includes
Express
Setoff for
Insurance
Proceeds
63%
Buyer Not Buyer
Expressly Expressly
Required to Required to
Mitigate Mitigate
Losses Losses
78% 22%
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 76
Dispute Resolution
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 77
Dispute Resolution
Governing Law*
Buyer's State of
Incorporation
16% Buyer's Place of
Business
15%
Other
13%
Selling Stockholders'
Residence/Business
2%
Target's State of
Place of Business of Incorporation
Buyer and Target 19%
2%
Delaware
43%
Target's Place of
State of Business
Incorporation of 3%
Buyer and Target
30%
* Assumes parties chose governing law based on state of incorporation in cases where chosen state matches both a
state of incorporation and a place of business
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 78
Dispute Resolution
Venue*
Buyer's Place of
Buyer's State of Business
Incorporation 18%
5%
Target's State of
Incorporation
Silent 17%
17%
Target's Place of
Other Business
17% 4%
State of
Selling Stockholder's Incorporation of
Residence/Business Place of Business of Buyer and Target
1% Buyer and Target 17%
4%
* Assumes parties chose venue based on state of incorporation in cases where chosen state matches both a state of
incorporation and a place of business
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 79
Dispute Resolution
Waiver of Jury
Trial Provision
Included
49.7%
No Waiver of
Jury Trial
Provision
50.3%
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 80
Dispute Resolution
Includes
General
ADR
provision
31%
Binding
Arbitration
77%
* ADR provisions that generally cover disputes under acquisition agreement (rather than those limited to specific
disputes such as purchase price adjustments or earnouts).
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 81
Dispute Resolution
Other
20%
Determined
by Arbitrator Evenly Split
30% 34%
M&A Market Trends Subcommittee of the Committee on Negotiated Acquisitions, http://www.abanet.org/dch/committee.cfm?com=CL560003 2007 Private Target Study (v1), slide 82