MACs are big

May 19, 2009

A demonstrator wearing a model of a hamburger on his head protests in Munich

And earn-outs are in. So says a new survey looking at almost 500 European deals from 2007-08 (most below $500m). As I wrote:

“The balance of power in European mergers and acquisitions (M&A) has shifted towards buyers, with deals containing more legal safeguards against a purchase turning sour, a survey released on Tuesday showed.

“The survey, by lawyers and accountants CMS, found more deals now contain ‘earn-out’ or ‘material adverse change’ clauses to protect buyers, and they often get longer to assess if a business is all it was promised to be.”

There was a bit of jiggery-pokery with the figures – the comparison periods were seemingly changed arbitrarily across categories, in order that the biggest difference possible emerged. Nonetheless, they highlight a trend:

* 17 percent of deals in the fourth quarter of 2008 contained earn-outs, which vary purchase prices depending on a target business’s future performance. That compared to 9 percent in the first half of 2008.

* MAC clauses, which give buyers an escape route if something causes the target’s value to drop materially, were included in 21 percent of deals in the second half of 2008, against 11 percent in the first half.

Read the full Reuters story here.

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