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| Changing landscape | ||
The collapse of Lehman Brothers in September 2008, while momentous and shocking in its reach at the time, was soon eclipsed by the government bailouts that followed. Later yet, the development of the global financial crisis that led to the need to bail out an entire country and protect one of the biggest economic areas in the world marked an even greater increase in scale.Hardly forgotten, Lehman Brothers’ downfall, however, has become just a marker, if an important one, on the road to the current situation of the world economy. The impact of the global financial crisis on one particular sector of the financial industry – mergers and acquisition (M&A) – is difficult to quantify in its entirety, nor is the latest European M&A study by CMS Legal Services EEIG attempting to do so, focusing instead on changes wrought by the crisis on the legal provisions of M&A agreements. Unsurprisingly, one trend seen by CMS was a significant reallocation of risk in favour of buyers and against sellers in 2009, compared to the 2007–2008 period. "Certain of our conclusions about 2009, although confirming most of these trends, also reveal other features of the market post-Lehman Brothers. It is clear from the sales contract provisions that many deals may have had an element of distress which is likely to have been reflected by a lower purchase price but, in certain cases, a greater assumption of risk by the buyer," the report said. In terms of concrete developments, CMS said that it saw an increase in the popularity of earn-outs, in which purchase price is tied to a company’s future business performance; an increase in the seller’s liability caps; lengthier time periods of general warranties; as well as nearly a doubling of material adverse clauses, which give parties, usually the buyer, the right to walk out of a deal in case of material negative event. In Central and Eastern Europe – a region defined by CMS as comprising Bulgaria, Croatia, Czech Republic, Hungary, Poland, Romania, Russia, Slovakia and Ukraine – the trends setting it apart from the rest of the continent were a longer general warranty period, with 69 per cent of deals envisioning a period of more than 18 months, compared to 57 per cent average for Europe in 2009; arbitration was the preferred dispute resolution process, stipulated in 80 per cent of all deals, nearly double the European average; and transactions were most likely to be conditional (95 per cent versus 87 per cent on average in Europe). CMS said that it saw many transactions with an element of distress, although the number of deals it advised on remained about the same in 2009. The impact of these deals on the sector was an increasing number of transactions with a short warranty limitation period of six to 12 months and an increase in the number of deals with custom-made conditions, suggesting that creditors and shareholders required parties to enter into sale and purchase agreements even if onerous conditions still needed to be satisfied. On the other hand, however, the decrease in the number of price purchase adjustments (with Central and Eastern Europe being one exception) was proof that buyers were more prepared to price the risk and rely on their own due diligence. "Based on market experience, we see more stability returning to the market during 2010, favouring trade buyers with strong balance sheets and access to funds," the report said. The CMS European M&A Study 2010 looked at 763 transactions relating to both non-listed public and private companies in Europe carried out over 2007/09, including more than 250 deals in 2009. Covering all business sectors, it included deals structured either as a share sale or an asset sale, but not land sales or internal group transactions. The data used is not publicly available and is based on privately negotiated transactions in which CMS, an organisation of European law and tax firms, acted as an adviser to either the buyer or the seller. |
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| Tuesday, Jun 01, 2010 | ||
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