CMS: 2011 was definitely a seller’s year for M&A

2012-06-29 13:29:09

CMS’ fourth annual M&A Study reviewing 1,350 deals done between 2007-2011, CMS’ fourth annual M&A Study shows that, in terms of risk allocation between seller and buyer, 2011 was definitely a seller’s year. “In Central and Eastern Europe, the ability of buyers to deal with a basket of currencies, and hedge against currency fluctuations, in cross-border deals has become a strategic advantage over the last 12 months. Different jurisdictions are being priced, and contractual terms and conditions are agreed, depending on the assessment of a jurisdiction as an emerging or developed market”, says Horea Popescu (photo), Co-head of the Corporate Practice in Romania.
European trends in M&A show a continued increase in the use of the locked box mechanism as an alternative to a purchase price adjustment. In CEE, the use of MAC clauses (which allow the buyer the opportunity not to complete a transaction after signing in case of a material adverse change of circumstances) continue to be more prevalent than in Western Europe. This is a reflection of the risk profile of the CEE region. Arbitration is also the favored forum for dispute resolution – used in 79% of cases in CEE transactions compared to 40% of cases in Western European transactions.
Compared with the US, there remains little appetite overall for earn-out deals in Europe (only 14 percent in 2011) apart from deals in the TMT sector. Earn-out clauses quite often give rise to difficult negotiations and subsequent disputes. In Europe we more often see purchase price gaps being bridged by vendor loans or option arrangements.
Another conclusion of the study states that buyers were more cautious in 2011, with a higher proportion (42% compared with 37% in the period 2007-2010) obtaining some form of security – whether it be the use of an escrow account, retention or bank guarantee. This is strong illustration of the fact that in mergers & acquisitions, “cash is king”.