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Surge in private equity deals across global M&A market
Global firm DLA Piper has released its eighth annual Global M&A Intelligence Report, finding the past year to have been “one of the hottest years for M&A on record”.
Jess Feyder
Key findings of the report show that private equity made up 39 per cent of sellers in merger and acquisition (M&A) auctions in 2021, rising from 24 per cent in 2020. It also showed private equity made up 50 per cent of auction buyers, indicating that private equity sellers and buyers were most likely to be involved in auctions.
The report found that auctions are attractive to sellers of high-value assets — in addition to maximising price through a competitive process, they also deliver better deal terms for sellers. It found the trend that sellers are the real winners in auction processes. Sellers get shorter limitation periods, lower caps on liability, are more likely to have a certain deal from signing and are less likely to have to give restrictive covenants.
The report also found that while there remained key differences in the approach taken by private equity and trade transacting M&A, there was evidence that trade buyers are becoming uniform in their approach of adopting private equity-style strategies in the way they executed deals.
This uniformity of approach was especially evident in the continued use of warranty and indemnity (W&I) insurance. W&I insurance was initially used almost exclusively by financial sponsors but is now increasingly being used by strategic buyers. The increased uptake indicates that there is general acceptance and understanding among corporates about the benefits of using W&I.
“In the Asia Pacific market, underwriters are becoming familiar with assets which have previously been sold subject to W&I insurance, which are then sold again a few years later with the same insurer being asked to underwrite the transaction for the new buyer,” said Jyoti Singh, partner at DLA Piper Australia.
“This can lead to a very streamlined W&I process and reduce the complexity of the transaction negotiations in this area.”
The report found that buy-side warranty and indemnity insurance is continuing to be used on large deals. Last year, more than half of large deals used buy-side insurance, compared to 14 per cent of small deals. Buy-side insurance was used in 67 per cent of large deals when an auction process was run.
“In Australia, the use of buy-side insurance in deals where private equity is involved is a given and almost a non-negotiable,” said Ms Singh.
The report also found an increased number of M&A transactions where pre-sale corporate reorganisations were required at some point in the wider transaction process, which required input across multiple jurisdictions and specialist practice areas.
Mark Burger, partner at DLA Piper, stated that there is a need for corporate simplification projects, driven by local compliance burdens overlaying global businesses and structures along with the ever-increasing focus on good governance.
“Many stakeholders need to be involved and properly coordinated to achieve the desired outcomes in terms of costs and efficiencies,” Mr Burger stated.
“We are seeing sustained interest from clients to use our innovative and collaborative global technology platforms to manage and deliver these complex projects.”
DLA Piper was involved in 1,104 transactions worldwide in 2021, valued at approximately US$242 billion. According to Mergermarket’s league tables, they were the highest-ranked legal adviser in the world for M&A deal volume for the 12th consecutive year.
