A Hot M&A Market Enters The Fourth Quarter: The Impact On Deal Points

As the fourth quarter gets underway, most mergers and acquisitions that will close in 2014 have kicked off and are moving forward into the documentation stage. Recently, several McGuireWoods LLP lawyers discussed what they are seeing with respect to those deals and what has been discussed at various conferences they have attended. Below is a brief summary.

Indemnity Caps and Deductibles

The market for indemnity caps, which recently has hovered around 10 percent, has seen a marked decrease to between 6 and 8 percent in recent months. Deductibles have seen a similar drop, from around 1 percent to between 0.5 percent and 0.75 percent. Survival periods for indemnity claims have remained constant in concept, with representations and warranties (other than fundamental representations) seeing a full 12-month cycle plus a cushion that includes time to complete an audit.

Contingent Liability Insurance (Reps and Warranties Policies)

Buyers and sellers continue to discuss reps and warranties policies (RWI) earlier in the bid process. In auctions, buyers are using RWI policies to try and distinguish their bids, while some sellers of highly desirable assets are requiring bids to include RWI policies from the outset. See: SBIC Weekly article "McGuireWoods Explains How to Distinguish Your Offer at Auction With Representations and Warranty Insurance." Further, the favorable seller dynamics in the current market have contributed to the increased use of RWI to help bridge gaps as indemnification provisions are negotiated.

Vendor Due Diligence Reports

Attempting to speed up the acquisition process, sellers are engaging third parties to prepare vendor due...