CMS European M&A Study 2020

This year’s Study covers 466 share and asset deals on which CMS in Europe advised in 2019. Despite the slowdown in the European M&A market in 2019, affected by political and economic uncertainty, CMS still managed to increase the number of deals for the third consecutive year advising on more deals than any other law firm in Europe.

The Study demonstrates the continuation of existing market trends across Europe, particularly “seller-friendly” provisions and warranty and indemnity insurance (W&I) as a replacement for or an addition to warranty coverage by sellers. We continue to see marked differences to the US approach to risk allocation which is generally more favourable to buyers. Otherwise market practice has remained broadly unchanged over the last five years, particularly as regards provisions catering for purchase price adjustments, the application of locked box structures, liability caps, earn-outs and security for claims.

The key findings of the 2020 Study include:

• Upward trend of legal technology tools – AI and document automation were used in numerous of the reviewed transactions, often leading to significant cost savings.
• Rise in popularity of Warranty & Indemnity (W&I) insurance – up by 2% to 19% of all deals but used in almost half of deals valued over EUR 100m.
• Gradual decline of purchase price adjustments (PPAs) – in 45% of all deals, up one-percentage point from the previous year, but significantly behind the average level for the previous three years.
• Upward trend of locked box structures continues – in 56% of deals with no PPA, highlighting parties’ wish for as much certainty as possible.
• de minimis and basket provisions becoming the market norm – now applying in majority (73% and 66% respectively) of transactions, most likely reflecting the increasing use of W&I insurance.
• Liability caps determined by deal size and W&I insurance – overall cap in smaller deals most likely to be full purchase price, compared to only 10-25% for larger deals. Additionally, almost half (45%) of W&I deals have caps of less than 10% of the purchase price, compared to only 10% of non-W&I deals.

In analysing the 2019 market, we report on current market standards on risk allocation in M&A deals, comparing 2019 against 2018 and the previous nine-year average for 2010–2018.

The special features of this Study are as follows:

• CMS Trend Index – we provide a CMS Trend Index to illustrate a current fact or trend for the particular feature reported on, comparing the position in 2019 with that of 2018 and / or the nine-year period 2010 – 2018.
• CMS European / US risk allocation comparison – we provide a headline analysis of the differing risk allocation on standard issues in European and US M&A.
• CMS European regional differences – we highlight certain issues which are particular to one or more of the six European regions covered.
• CMS deal size analysis – we analysed our data against three different deal values: firstly, deals up to EUR 25m; secondly, deals in a value range of EUR 25m to EUR 100m; and thirdly, deals exceeding EUR 100m.

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