Europe Stabilises Post-Lehman, According to CMS Survey

In the first European study to look at the mergers and acquisitions (M&A) market before and after the collapse of Lehman Brothers, CMS draws on data from more than 750 M&A transactions stretching across Europe. The study’s findings reveal evidence that stability is returning to the M&A market in 2010.

Martin Mendelssohn, CMS Cameron McKenna corporate partner, said: “[Our research] clearly reflects the transition to a buyer’s market in 2007 and 2008. However, as more time passes following the Lehman Brothers insolvency there are now clear signs of a more balanced market for risk allocation between buyers and sellers.”

Key points:

  • Fewer purchase price adjustments, along with fewer non-competes, shorter limitation periods and exemptions from material adverse change (MAC) clauses paint an overall picture of greater simplicity in M&A transactions during 2009.
  • Earn-outs: there has been only a slight increase in the number of transactions with earn-outs.
  • Liability caps: during the period 2007–2009 sellers found that liability caps were progressively increasing.
  • 2009 saw only a slight lengthening of warranty limitation periods.
  • A number of transactions reflect an element of distress.

The research shows several ‘hot issues’ in M&A deals are more heavily negotiated post-Lehman. For example, negotiations over closing conditions have increased significantly, showing both sides are opting for more rigorous, explicit deal points before signing on the bottom line. More deals had bespoke conditions rather than just the usual conditions, such as merger clearance or regulatory approval.

The period post-Lehman shows a notable decrease, from 61% in 2008 to 48% in 2009, in price adjustment clauses. This decrease may be surprising at first. It is most likely explained by the element of distress in many transactions leading to a lower, but fixed, purchase price acceptable to both parties. However, this comes against the backdrop of greater sophistication of purchase price mechanisms when they were used.

The CMS European M&A Study 2010 is based on analysis of 763 transactions relating to both non-listed public and private companies in Europe for the three-year period 2007–2009. More than 250 transactions relate to 2009.


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