M&A Activity – Interesting Trends from 2011 and Insights for 2012

Some interesting trends emerged from a study of select US M&A deals in 2011 that may be predictors of what’s to come in 2012. A synopsis of a study conducted by Practical Law Company was provided in a webinar in late January, entitled A Year in Review: Public M&A Trends and Highlights from 2011.

According to the study, deal volume was significantly lower in the second half of last year and on pace with 2010 levels in the first half of last year, with 48 and 49 acquisition transactions in the first and second quarters, respectively. The second half of the year saw deal volume drop to 2009 levels, with only 28 and 32 acquisition transactions in the third and fourth quarters, respectively. Strategic deals also continued to outnumber financial deals by both volume and value.

Some other interesting trends to note from the study include the following:

  • The reemergence of the “club deal” in 2011 saw a noticeably higher number of private equity consortium deals than in recent years. This raises an interesting question as to whether target companies will react to this trend by restricting consortium bidding in non-disclosure agreements to encourage a more competitive auction process.
  • An increased number of deals were debt financed in 2011, with 55 per cent of deals being debt financed, compared with 2010 where only 34 per cent of deals were debt financed.
  • There were fewer deals with go-shop provisions in 2011 (10 per cent) than in 2010 (15 per cent) and there seemed to be an increasing variation in the length of go-shop provisions range anywhere between 30 to 60 days.
  • The majority of deals in 2011 had a break fee (97.5 per cent) and the size of the break fee was generally between two and four per cent. Single-tier break fees remained the most common, though there were four deals that had a multi-tier fee structure, with lower fees payable during the go-shop period or in respect of acceptance of a superior proposal and higher fees payable after a go-shop period had expired.
  • There were a higher number of reverse break fees in 2011 than in 2010, with a wide range of fee sizes. An interesting trend is that higher break fees were seen in the first half of the year when deal volume was also higher, but as the deal pace slowed in the second half of the year, the size of reverse break fees also seemed to lower, likely due to market uncertainty.

Stay tuned to see if these trends continue into 2012 and whether deal volume recovers to early 2011 levels.

"go shop" provision break fee M&A trends private equity public M&A reverse break-up fee US M&A



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