In a review of 1,700 deals done between 2007-2012, CMS’ fifth annual M&A Study shows that, despite difficult economic times, sellers have been able to limit their liability significantly in the transactions analysed for the report.

“Now in its fifth year, the M&A study is fascinating reading for businesses looking to do deals across borders and understand the norms in other countries” said Cornelius Brandi, Executive Chairman of CMS. “It exemplifies the value that CMS delivers to clients in providing both multi-national expertise and a deep understanding of the issues that drive businesses today.”

Thomas Meyding, Head of CMS Corporate Group, comments, “2012 was another uncertain year in which global M&A activity flatlined – with total deal value almost exactly the same as in 2011. Despite the challenges of finding potential purchasers in today’s market, once sellers have done so, they tend to get a good deal in terms of risk allocation.”

Helen Rodwell, the CEE Head of Corporate Group added: “In Central and Eastern Europe 2012 was undoubtedly overshadowed by widespread economic turmoil. The prolonged market uncertainty manifested itself in a reduction in the overall number of M&A transactions. Despite this downward trend, our Corporate team remained busy across the region, and was named 'CEE M&A Legal Adviser of the Year' by the Financial Times and mergermarket in December 2012. The CEE region remains attractive to investors and I'm confident that 2013 will again bring a steady flow of deals.”

2012 saw an increase in the number of locked box deals – particularly across Europe – where the rise was most noticeable in jurisdictions such as the UK, Benelux and CEE. One possible explanation is that there were more financial or private equity sellers in 2012 who traditionally favour this type of mechanism.

It is also apparent that liability caps are still moving downwards, with 54% of deals now having a liability cap of less than half the purchase price. General warranty limitation periods are becoming more standardised around the 12–24 month period. There is also a significant reduction in the number of deals with a seller non-compete covenant.
The main buyer-friendly trend is the relative success of more purchasers in obtaining security for warranty claims.

The key conclusions of the CMS European M&A Study 2013 are as follows:

• Earn-out – unlike in the US, there remains little appetite overall for earn-out deals in Europe (only 16% in 2012).
• De minimis and baskets – the use of these provisions is increasingly commonplace throughout Europe. However, unlike in the US, the standard basis of recovery remains ‘first dollar’ and this trend strengthened during 2012.
• Liability caps – caps are still much higher than in the US.
• Limitation periods – after fluctuations during the 2007–2010 period, the limitation period of 18–24 months has remained the most popular throughout 2011 and 2012 at a constant 32% of deals.
• Security for warranty claims – as in 2011, buyers remained cautious, looking to obtain some form of security (whether it be use of an escrow account, retention or bank guarantee) in 42 % of deals in 2012.
• MAC clauses – these remain relatively rare being a feature in only 14% of deals in Europe, which is a significant contrast to the US where the overwhelming majority (93%) of deals have MAC clauses.
• Non-compete covenants – whilst in 2011 more than half of the deals had non-compete provisions (53%), for the first time since 2007, the pendulum swung in the opposite direction in 2012, with only 46% of deals containing a seller non-compete covenant.

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For further information, please contact :

Liliya Omelyanenko, CMS Cameron McKenna       
liliya.omelyanenko@cms-cmck.com / + 380 44 391 33 77

CMS lawyers immerse themselves in their clients' business. This enables them to deliver the most effective legal and tax solutions. Both leading domestic and major global corporations work with CMS´ 2,800 lawyers across 53 offices in Europe, Russia, China, North Africa and South America.

Clients select CMS because it has the most extensive footprint in Europe of any firm. CMS provides local and industry sector insight, global project management and its specialist teams work hard to add value to their projects, wherever they are taking place.

Established in 1999, CMS today comprises ten member firms, all experienced in their local jurisdictions. This expertise means that clients receive high-quality advice in the local context. CMS firms posted a combined turnover of EUR 808m in 2011. For more information, please visit www.cmslegal.com.