- December 1, 2011
Partner Craig McCrohon has completed the country’s largest database of legal terms of private mergers and acquisitions deals. The 2011 M&A Benchmarking Study includes over 1,000 middle market deals with benchmarks for deal terms that may used by corporations, investment bankers, in–house attorneys and other deal professionals.
By reviewing over 1,000 transactions between 2004 and 2011, McCrohon and his team measured the frequency of common deal terms. For the first time, deal professionals can compare terms across industries, deal sizes, and other critical transaction measures. While other associations and investment banks have produced their own studies of deal terms, none include as many deals or criteria as that recently completely by McCrohon.
The study has been presented privately to large and middle market corporations, as well as selected investment bankers.
Highlights of the Study
The Benchmarking Study examines the following deal dynamics, among others:
• Comparison of the types of payment used for acquisitions. Deal professionals can benchmark the use of cash, stock or debt as part of transactions, along with analysis of the type of payment and other aspects of the transaction.
• Evaluation of deal indemnities. These provide a contract right for buyers to seek reimbursement from the sellers for losses after the closing. Lawyers are often left arguing in the dark about what is “standard” regarding how much buyers should get, when they should submit a claim, and the process for the claims. The Benchmarking Study measures trends regarding the terms, amounts and time periods for such buyer-friendly provisions. Unlike other smaller national studies, the 2011 Benchmarking Study measures the differences across deal types, the size of the parties, bargaining power, and industries.
• Procedures to resolve dispute. Deal attorneys fight over whether to use arbitration, mediation, or litigation to resolve future disputes. The 2011 Benchmarking Study enables companies and merger specialists to evaluate the most appropriate form of dispute resolution by deal type and size.
Benefits of the Study
• Companies and deal professionals benefit from the study by managing the deal process more efficiently. By knowing the true market for various terms for various types of deals, companies and M&A advisors benefit from the following:
• Avoiding negotiating against themselves. By knowing the market standard for deal provisions, businesses avoid giving away too much out of fear of offending the other party.
• Accelerating deal completion. By understanding where the middle ground is for contract terms, companies can more efficiently manage their negotiating strategy. Whether aggressive or accommodating, buyers and sellers avoid blindly searching for the fair term while wasting weeks debating with the other side.
• Educating stakeholders. Often, buyers and sellers understand the fairness of the deal. However, the shareholders, directors and other stakeholders may perceive the deal as being too generous or overly aggressive. Using a broad set of market terms, executives responsible for acquisitions can better sell the deal internally and politically manage the process.
• Knowing when to hold ’em, know when to fold ’em. By benchmarking a genuinely “fair” deal, companies can hold tough or compromise, all with greater confidence knowing the true market for a particular provision.
• Spotlighting truly unreasonable demands. Commonly, negotiators en-counter sellers or buyers taking ridiculous positions. With a benchmark of fair deal terms, mergers and acquisitions professionals can quickly and confidently measure the “piggy-ness” of other party’s demands regarding a particular term.
Summaries of the 2011 Benchmarking Studies are available from Craig McCrohon for clients or friends of the firm. He may be reached at 312/840-7006 or firstname.lastname@example.org.