NewsCMS European M&A Study 2019: Sellers set the agenda, despite market uncertainty

The “seller-friendly” dynamic in European M&A transactions strengthened during 2018, notwithstanding a drop-off in volumes towards the end of the year. This comes in marked contrast to the US market, where risk allocation continues to favour the buyer.

These conclusions were published by CMS today in the 11th edition of its annual European M&A Study, a multi-year analysis of the key legal provisions within M&A agreements. The study is the most comprehensive of its kind and is based on a proprietary database comprising more than 4,000 deals over a 12-year period.

Stefan Brunnschweiler, Head of the CMS Corporate/M&A Group, said: “Brexit and wider geopolitical challenges are weighing on European M&A. Yet while volumes have tailed off, we’re still seeing a sellers’ market when it comes to the terms of completed deals. In our view, this won’t change. Buyers remain hungry for growth and when they see opportunities, they want to capitalise on them.”

Helen Rodwell, head of CEE corporate, added: “In most countries in the region we still see a healthy supply of targets that attract interest from foreign investors. Howevere global private equity firms and multinational corporates increasingly see competition from regional and domestic financial players in the bidding process. Such competition can favour sellers who are often able to negotiate more favourable terms with regional and domestic buyers than with global funds or corporates.”

Key findings of the report include:

  • Decreased use of purchase price adjustments (PPA) – around 44 percent of deals included a PPA compared with 48 percent in 2017. This represents a notable movement against the overall trend in recent years
  • Significant increase in the application of locked box structures – of the deals that did not involve a PPA, 59 percent used a locked box in 2018 which represents a significant increase over the 49 percent in 2017
  • Earn-outs continue to grow in popularity – there was a two-percentage point year on year increase in the use of earn-outs in 2018. A quarter of small and mid-cap deals now involve earn-outs
  • A record year for Warranty & Indemnity (W&I) insurance –sellers are increasingly offloading their warranty exposure by pre-packaging a buyer’s W&I policy. Nearly a third (30 percent) of deals valued over EUR 100m now involve this form of insurance 

Regional differences

France has the lowest use of seller liability caps and applies de minimis and basket provisions on fewer transactions proportionately than the rest of Europe. However, the use of these provision has increased dramatically in the UK.

The concept of data room disclosure has not become widely adopted in Southern Europe. Only 7 percent of transactions in the region reflect such a provision compared with 74 percent for the Benelux and 61 percent for the UK.

CEE leads in the use of MAC clauses (an increase this year) and continues to apply more arbitration than other European jurisdictions. Once again, the German-speaking countries reflect their geographic setting and sit in the middle on most risk allocation issues.

In contrast to Europe, the US is a buyer’s market. This is reflected in a much more frequent application of purchase price adjustments and MAC clauses.

To order a copy of the study, visit:,1E7EZ,63IDJ6,4LQNO,1