The report – which details the most recent trends in private M&A deals based on DLA Piper’s database of over 5,000 transactions – found that, despite the tapering M&A market, buyers are not benefiting from improved deal terms in the way they typically do during slowdowns in M&A.

“At the same time, sellers were starting to focus on completion protection measures as the risk of broken deals increased,” said Melbourne-based Shane Bilardi, Head of Corporate, DLA Piper Australia.

Another feature of the market is the increasing regulation of FDI.

“A more complex geo-political environment has led to tightening foreign investment regimes around the world,” said Shane.

“This leads to more FDI conditionality in transactions making FDI approvals one of the more common gating items now for any transaction,” Shane said.

“Unsurprisingly, we’ve also seen boards are increasingly focused on ESG considerations in transactions.” Shane added. “It’s driving deal flow as clients seek to transform their businesses in light of ESG concerns but also changing our processes as ESG issues become a focus of due diligence.”

Key findings of this year’s report include:

• Global markets generally are seller friendly, although the US approach is significantly more balanced between buyers and sellers;
• The terms of large deals differ from the terms in smaller deals in some key respects: a large deal is more likely to proceed by way of auction; more likely to have a locked box mechanism and more likely to have a gap between signing and closing. Smaller deals see more earn-outs and sellers are more likely to be tied into restrictive covenants;
• A continuing trend showing sellers as the real winners on deal terms 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;
• In one of the signs of M&A practices evolving around the globe, the locked box mechanism, which was one a rarity outside of the UK and some European markets, has become widely used in most markets other than in the US.

Jyoti Singh, Corporate Partner, said “Our data indicates that, despite some global trends, key differences persist between different jurisdictions. For example, US deals continue to have more outs for a buyer before closing than in Europe or Australia and warranties are typically repeated at closing on deals in the US and Australia, whereas in Europe and Asia repetition of warranties is less common.

Many of our data points showed that differentiation across markets of deal terms still existed. These findings of differentiation show the value of our global study and our reach as a global firm. Having transactional lawyers in all major markets means we are able to track those differences and be ready for them as we advise our clients.”

“Our study also considered the use of warranty and indemnity “deal" insurance showing that take up of the product remained relatively steady in the US, with a slight decrease in the UK and Europe but a continued increase in APAC. This growth seemed to be driven by the market entry by UK insurers into APAC and buyers becoming more sophisticated in their use of the product including certain enhancements such as specific tax or environmental risk policies, US-style underwriting and policies in markets other than the US, fully synthetic policies and enhanced limitation periods.

“Despite the market slowing, new players continue to enter the warranty and indemnity insurance market which shows that the product continues to show signs of growth” Jyoti added.

Corporate Partner, Joel Cox, said “although deal activity has been strong over recent years, it has weakened more recently and it will be interesting to see how deal terms change as buyers and sellers react to this, despite this not having played out in our study yet.”

“Our view is that any change will be very gradual as seller friendly deal terms have become pretty entrenched. But we are seeing earn-outs and equity rollovers have continued to be a key feature of technology M&A in the region,” Joel said.

“While earn-outs are seen in trade sales, private equity funds focused on software almost always require key managers to continue with a meaningful stake rolled over following a buyout,” Joel added.

For the 13th consecutive year, DLA Piper was the highest-ranked legal advisor in the world for M&A deal volume, according to Mergermarket's league tables. The firm was involved in 1,131 transactions worldwide in 2022.

To register for a copy of the Global M&A Intelligence Report 2023 click here.