Research Deal Terms: Price terms business acquisitions eased

Compared to last year, the terms surrounding business acquisitions have been partially relaxed. Selling entrepreneurs are increasingly managing to keep a deferred payment or subordinated loan out of the deal terms. Conversely, investors are mainly betting on extra guarantees, indemnities and a robust competition clause.

These are the main findings from the Deal Terms survey, the annual survey by acquisition platform Brookz into the deal terms of acquisition transactions in SMEs. The survey was held for the second time this year. 243 acquisition lawyers participated and a total of 813 purchase agreements were scrutinized.

Better negotiating position

Although uncertainty in the world has certainly not abated over the past year, falling interest rates in particular are now having a positive effect on the takeover market. This is reflected in an improved negotiating position of selling entrepreneurs regarding price and financing terms. Compared to last year, the number of deals in which a deferred payment (33%) or subordinated loan (27%) was negotiated decreased by 29% and 31% respectively.

On the other hand, buyers and investors remain firmly committed to placing as much risk around a transaction on the selling party as possible. This is reflected first and foremost in an increase in suspensive conditions (9%) such as due diligence outcomes, third-party consent (e.g., ACM) and reservation of bank financing.

In addition, there has been an across-the-board increase in stipulated warranties and indemnities (+6%), such as a correctly prepared balance sheet, property not being pledged, no legal claims and accurate data on personnel, environmental issues and pensions.

Collateral

To ensure that any claims against the seller can also be recovered, buyers are demanding more collateral (20%) in the form of an asset conservation statement (70%), withholding part of purchase price (36%), a bank guarantee (24%) and a personal surety bond (20%).

And to prevent the selling entrepreneur from re-entering the same industry within the foreseeable future, 94% of all purchase agreements include a non-competition clause for a period of 1 to 3 years, up 11% from last year.

Renegotiate

According to Peter Rikhof, founder of Brookz, selling entrepreneurs have gained a slightly better bargaining position in terms of price, but the stricter guarantees and indemnities should not be underestimated.

'Entrepreneurs often get excited with a nice first offer. But then a tough audit follows, which usually leads to renegotiation. We see experienced investors then try to maximize the risks of the transaction to the selling party. That sometimes goes so far that as a seller you have to ask yourself whether it wouldn't be better to call off the deal.'