Houlihan Purchase Agreement Study

77% of all transactions over the past 10 years had representations and guarantees that survived the conclusion of the agreement. Within this group of transactions, the vast majority of sales contracts analyzed included a basket of receivables, a compensation cap and/or a trust fund. While there is no consensus on what is “fair and normal” or “market” for any of these compensation provisions (each concept would have been widely negotiated and depends on the facts of each transaction), the results of HL`s sales contracts over the past ten years indicate specific trends and patterns. The results of the study are valuable. By assessing the terms of the sales contracts – with an emphasis on the rules of compensation and their link to insurance, guarantees and agreement alliances – the study provides valuable information and benchmarks in the central market and refers to current market trends in relation to the elements of previous iterations of the study. The study also took into account sales contracts to determine how often the purchase consideration (composed of money, securities or other goods or instruments) is withheld by the seller and paid into an account at the close in order to offer the buyer protection for the future payment of claims. The study also took into account sales contracts to determine how many agreements contained a cap on the amount of damage the buyer could recover from the seller under the compensation rules. The Terms Study deal analyzes 925 private acquisitions ($165 billion) that were completed between 2014 and 2017 in which SRS Acquiom provided professional and financial services. The vast majority of these transactions do not have to be publicly reported. The data are presented on the basis of the calendar year and are linked to the closing date. Medians are presented in addition to average values to compensate for the effects of outliers.

Sample sizes have been larger in recent years due to our growth. The study examined sales contracts to determine how many agreements contained an aggregated basket of receivables that provided that a seller was not required to exempt losses until the total amount of all such losses exceeded a certain amount (the “basket”). There are two main types of baskets: (1) a one- or one-dollar basket (i.e. if the seller is responsible for the total amount of losses when the total amount of losses exceeds the basket) and (2) a deductible basket (i.e. if the total amount of losses exceeds the basket, the seller is only responsible for losses exceeding the basket). The table below shows the average, median and maximum values of the corresponding compensation terms of the transactions reviewed over the past ten years. In all cases, the size of the numerical values is measured as a percentage of the purchase price. The file is adobe Acrobat PDF. If problems arise when opening the downloadable file, you may need to download Acrobat Reader for free. Houlihan Lokey is pleased to share with you his annual Purchase Price Allocation (PPA) study, one of the most important and detailed studies of its kind.

Our annual AAE study provides a detailed overview of the latest allocations recorded by publicly traded filers and can be used as a industry-wide reference. To filter data from more than 1,500 M-A contracts and assess the market conditions of the specific agreement you are negotiating, please visit MarketStandard.

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