CMS European M&A Study 2021

This year’s Study covers 408 share and asset deals on which CMS European offices advised in 2020. Notwithstanding the COVID-19 pandemic, which took over the world in 2020 and significantly slowed down the M&A deal market in the first half of the year, the market recovered strongly in the second half of the year, providing us with interesting insights on how the market and industries react to such extraordinary worldwide environment.

Apart from the inevitable impact on deals which were delayed or did not proceed as a result, the Study indicates that the pandemic is also likely to have affected certain deal terms. The 'seller friendly' market trends that we observed in the last years have given way to the terms more favourable to buyers. This may be a result of a more risk averse environment prevailing due to the pandemic. For example, we found that liability caps increased, and limitation periods were longer and the application of de minimis and basket clauses flattened out. There were also fewer locked box deals and, although earn-outs did not increase in use, earn-out periods were longer. It remains to be seen if this trend will continue over the longer term or if any of these trends continue to apply in future years as the pandemic hopefully subsides.

The key findings of the 2021 Study include:

• Use of the Locked box – a decrease in use from 56% in 2019 to 51% in 2020, although the overall upward trend remains.
• Steady Use of Warranty & Indemnity insurance – by 2% (down to 17%) and most significantly so in the UK.
• Continuing decline of purchase price adjustments – in 44% of M&A agreements (compared with 45% for 2019). This may indicate an inclination towards parties seeking more certainty as to the amount of the purchase price when signing the transaction documentation.
• Use of Earn-out provisions remains consistent – Notwithstanding the pandemic, our statistics show overall there was little change. Perhaps 2021 will see the increase we expected as deals originated and negotiated during the pandemic are transacted.

In analysing the 2020 market, we report on current market standards on risk allocation in M&A deals, comparing 2020 against 2019 and the previous ten-year  average for 2010 – 2019.

The special features of this Study are as follows:

• COVID-19 Pandemic impact – we analysed how the global pandemic impacted deals in 2020.
• CMS European / US risk allocation comparison – we provide a headline analysis of the differing risk allocation on standard issues in European and US M&A.
• CMS European regional differences – we highlight certain issues which are particular to one or more of the six European regions covered.
• CMS deal size analysis – we analysed our data against three different deal values: firstly, deals up to EUR 25m; secondly, deals in a value range of EUR 25m to EUR 100m; and thirdly, deals exceeding EUR 100m.

We hope the CMS European M&A Study 2021 will again be a useful guide for you in a more and more challenging investment climate.