Roaring Forward New M&A Deal Structures | Summary and Q&A

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August 18, 2021
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Bloomberg Law
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Roaring Forward New M&A Deal Structures

TL;DR

Private target deals have rebounded since the pandemic, with changing deal terms in M&A, representation warranty insurance, and an increasing focus on ESG factors.

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Questions & Answers

Q: How has the M&A market performed after the initial impact of the pandemic?

The M&A market has rebounded since the pandemic, breaking records in sectors like technology, contrary to initial concerns.

Q: What were the notable trends in deal terms during the pandemic?

One significant trend was the inclusion of the pandemic as a carve-out in material adverse effect definitions. Another trend was an increase in deals with buyer equity as part of the consideration, bridging valuation gaps.

Q: How has representation warranty insurance (RWI) influenced deal terms?

RWI has become nearly universally required in private equity deals and has led to changes in escrow sizes, survival periods, and indemnity terms. It has also influenced the inclusion of no other representations clauses and specific provisions related to baskets and sandbagging.

Q: How are ESG factors impacting investment strategy and deal dynamics?

ESG factors have a divided impact, with around 40% considering them important and an equal percentage considering them unimportant. Brand and reputation appear to be the most influential factors, while external pressure from regulators and impacts on financial results are also considered.

Summary & Key Takeaways

  • Despite initial concerns, the M&A market has rebounded after a temporary pause during the pandemic, particularly in sectors like technology.

  • Trends in deal terms include a significant change in the inclusion of the pandemic as a carve-out in material adverse effect definitions and an increase in deals with buyer equity as part of the consideration.

  • Representation warranty insurance (RWI) has become more prevalent in private equity deals, influencing the size and terms of escrow funds, as well as survival and indemnity periods.

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