European M&A

During our Acquisition Finance class, Joe and I spend considerable time discussing European deals.  European deals come with their own strengths, weaknesses  opportunities (and yes, even threats).  It is important to understand these differences when considering and structuring a deal.  

A recent analysis of European deals by CMS provides some interesting findings including:

·      MAC clauses are much more popular in the US (being used in 93% of deals) than in Europe where they only appear in 14%. Another sizeable difference exists in the use of working capital adjustments as a criterion for purchase price adjustment, used in 77% of cases in the US as opposed to just 34% in Europe.The explanation for this may simply be the diversity that one sees in 50 different countries as opposed to 50 different states in one country.

·      Earn-out deals are more popular in the US. 38% of US deals had an earn-out component compared with just 16% in Europe in 2012.

·      Not only are baskets much more prevalent in the US, but the basis of recovery is different. In the US, 62% of relevant deals are based on ‘excess only’ recovery as opposed to ‘first dollar’ recovery compared with only 29% in Europe in 2012 for ‘excess only’ recovery.

·       Basket thresholds tend to be lower in the US with 88% being less than 1% of the purchase price compared with 49% in Europe and that is probably because there is less payback for purchasers because of the prevalence of "excess only" recovery.

More detail on the report can be found at:  European M&A.

All the best,

Ralph