Home / News / CMS European M&A Study 2020: Seller remains king in...

CMS European M&A Study 2020: Seller remains king in Europe while industry benefits from artificial intelligence


With the acute pandemic we are facing very challenging times in many respects. We are all worried to keep our loved ones, our colleagues and ourselves in good health but at the same time we also have to deal with the possibly severe economic consequences of the extensive lockdown affecting many countries and regions. 

A great number of urgent questions have been asked by our clients in relation to the impact of the lockdown on contracts, shareholders' meetings, lease agreements, employees and companies generally. Together with our clients we are looking at possibilities to obtain bridge financing, state aid and other means to avoid dismissals and possibly even bankruptcy proceedings.

In the shifting landscape of today's priorities, we at CMS Corporate/M&A have just completed the 2020 edition of the CMS European M&A Study, a work of relevant value which we are pleased to share with you. 

This year’s Study reflects data from 466 deals in 2019 on which CMS advised. This is the largest number of deals ever covered by the Study, which is reflective of our gain in market share and corresponding rise up in the M&A league tables.

A short video with the highlights of the study can be found here.

Now is not the right moment to talk about meetings, but a presentation tailored to your specific interests is something we can offer. Our CMS Corporate/M&A team will be able to give you a detailed analysis of our underlying proprietary data in order to paint a much more nuanced picture of the various regions and industry sectors.

Do reach out to us when the time is right for you.

Best regards
CMS Corporate/M&A Belgium

CMS European M&A Study 2020: Seller remains king in Europe while industry benefits from artificial intelligence

Europe continues to be a sellers' market. All countries across Europe now apply “seller-friendly” risk allocation techniques, while the US continues to firmly favour the buyer.

These conclusions were published by CMS today in the 12th edition of its annual European M&A Study, a multi-year analysis of the key legal provisions within M&A agreements. The study is the most comprehensive of its kind and is based on a proprietary database comprising more than 4,600 deals.

In identifying the primary deal drivers for transactions, CMS revealed that almost half of deals represented buyers entering a new market (46%) or acquisitions of know-how or acqui-hire transactions (41%). The proportion of these transactions both increased since 2018 (32% and 23% respectively). One fifth of the deals represented the acquisition of a competitor. 

Stefan Brunnschweiler, Head of the CMS Corporate/M&A Group, said: “We are seeing demand for deal certainty in the unpredictable macroeconomic context, greater use of clever risk allocation strategies, as well as new cutting-edge technologies benefitting the industry.

The M&A Study 2020 will be a useful guide for those considering transactions in a more and more challenging investment climate.

Key findings for 2019 include: 

  • Upward trend of legal technology tools – AI and document automation were used in numerous of the reviewed transactions, often leading to significant cost savings.
  • Rise in popularity of Warranty & Indemnity (W&I) insurance – up by 2% to 19% of all deals but used in almost half of deals valued over EUR 100m. 
  • Gradual decline of purchase price adjustments (PPAs) – in 45% of all deals, up one-percentage point from the previous year, but significantly behind the average level for the previous three years. 
  • Upward trend of locked box structures continues – in 56% of deals with no PPA, highlighting parties’ wish for as much certainty as possible.
  • de minimis and basket provisions becoming the market norm – now applying in majority (73% and 66% respectively) of transactions, most likely reflecting the increas-ing use of W&I insurance.
  • Liability caps determined by deal size and W&I insurance – overall cap in smaller deals most likely to be full purchase price, compared to only 10-25% for larger deals. Additionally, almost half (45%) of W&I deals have caps of less than 10% of the pur-chase price, compared to only 10% of non-W&I deals.

Regional differences 

Vincent Dirckx, Partner and Head of the CMS Corporate/M&A practice in Belgium, notes the following major differences in market practice within the Benelux:

  • In the use of W&I insurance, there was a significant decrease of the number of policies purchased,19% in 2018 to 8% in 2019 (UK 37%).
  • There has been a significant decrease in the use of locked box structures. Only 28% of transactions without a PPA using this structure, which is some way behind the European average of 56% of such transactions.
  • Liability caps are relatively low: in 2019, 24% of reported transactions had a liability cap of more than 50% of the purchase price as compared with the overall European average of 42% of such deals.
  • The Benelux experienced an increase in deals with short limitation periods (between 6 and 12 months), rising from 6% in 2018 to 16% in 2019

Vincent Dirckx adds: "There continues to be regional variations in the application of the minimis clauses. The Benelux is a clear leader with 92%, with CEE and German-speaking countries at 80% and 74% and less usage in Southern Europe 40%. In the UK, the application decreased from 88% to 77%." 

"And what will be the impact in 2020 of the Covid-19 for the world of mergers and acquisitions. M&A professionals are trying to assess the impact of the coronavirus on businesses, industries and the world economy in general."

The US approach to risk allocation continues to favour buyers. While PPAs remained at 45% in Europe, they featured in 95% of all US deals. 

The UK has the highest proportion of W&I insurance (37%) which means lower liability caps and shorter limitation periods for those deals. Limitation periods are longest in CEE and France, and liability caps are highest in the Germanic and Benelux regions. 

CEE also leads in the use of MAC clauses, an increase of 7% this year, compared to the European average of 16%. 

PPAs remain unpopular in Germanic-speaking countries, being used in 37% of deals, less than the European average of 45%. They are least applied in France however, which stands at 28%. Earn-outs were least used by CEE and France, which included them in only 8% of transactions, compared to the European average of 21%.

Locked boxes were unusual in Southern Europe, with only 36% of transactions without a PPA using this structure, far behind the European average of 56%. The concept of data room disclosure has not become widely adopted there either, with only 27% of transactions reflecting such a provision compared with over 50% for Benelux, CEE, Germanic and UK deals.

For more information: https://cms.law/en/int/publication/cms-european-m-a-study

Press releases
PR_CMS European M&A Study_2020
PDF 7.2 MB

Related people

Portrait ofVincent Dirckx
Vincent Dirckx