Seyfarth Shaw published the 2020/2021 edition of its “Middle Market M&A SurveyBook,” which analyzes key contractual terms for more than 175 middle-market private target deals signed during 2020 and 2021. The survey focuses on deals with a purchase price of less than $1 billion.
Here are some of the findings regarding indemnity escrows for insured and uninsured deals:
– The median indemnity escrow amount during the period of 2020 and 2021 (“2020/2021”) for the non-insured deals surveyed was approximately 8% of the purchase price (as compared to approximately 10% in 2018 and 2019).
– Approximately 91% of non-insured deals had an indemnity escrow amount of 10% or less (as compared to approximately 83% in 2019), but only approximately 26% of non-insured deals had an indemnity escrow amount of 5% or less, which is consistent with 2019.
– The median indemnity escrow amount in 2020/2021 for the insured deals surveyed was approximately 0.5% of the purchase price (as compared to approximately 0.6% in 2019 and 0.9% in 2018). It is plain to see the dramatic impact that R&W insurance has on the indemnity escrow amount (approximately 0.5% for insured deals, as compared to approximately 8% for non-insured deals).
– The vast majority of insured deals had an indemnity escrow amount of less than 5%, and of those deals, approximately 89% had an indemnity escrow amount of 1% or less (as compared to 91% in 2019). This is consistent with the prevailing R&W insurance structure of including a retention (deductible) equal to approximately 1% of deal value.
The survey also covers other indemnity-related provisions, rep and warranty survival provisions and carve-outs from general survival provisions, fraud exceptions and definitions, and governing law provisions.
— John Jenkins, DealLawyers.com, April 5, 2022