Nixon Peabody’s yearlong survey of more than 400 big deals showed that sellers were increasingly getting the upper hand in deals. But, in attorneys’ experience since the survey closed in June, that sellers’ market could be changing.
“It will be interesting to see if what we’ve seen in the last few months is a temporary blip or the beginning of a swing the other way,” said partner Phil Taub, the leader of the firm’s private company transactions group.
For the year ending May 31, the firm’s attorneys studied public deals in all industries that were valued at more than $100 million (with the high end at $32.9 billion). Specifically, they looked at material adverse change (MAC) clauses, which are considered a bellwether of the power balance between buyers and sellers.
MAC clauses give the buyer an “out,” defining conditions under which they can walk away from a deal before it closes.
“It showed a continuing trend of the seller getting more and more of the upper hand on the buyers,” Taub said, explaining that an auction atmosphere for many deals contributed to the seller’s market.
The survey showed that the majority of sellers weren’t permitting many deal-breaking exceptions — even for events such as a large terrorist attack; changes in the securities market; or for changes in laws or regulations that could affect private equity profitability.
Only time — and next year’s survey — will tell whether the recent market changes since the last survey ended are a blip or a trend, but at least anecdotally, Taub said there seems to be a shift.
“We expect the recent market activity to have a chilling effect on large transactions as private equity liquidity dries up and deal terms must be refashioned to be more buyer-friendly,” he said.
— Kellie Schmitt
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