Amid evolving market uncertainty, an uptick in private M&A activity in 2024 has many market participants predicting a faster pace toward the back half of the year. Private equity and venture capital firms holding onto portfolio companies are reaching a critical juncture as liquidity and LP returns remain critical to success. Meanwhile, buyers are navigating their own competitive landscape as more investors vie for top targets. Simultaneously, strategic acquirers may adjust their M&A approach in response to macroeconomic conditions, pursuing countercyclical opportunities or acquiring targets with strong revenues.
What is certain is that M&A deals remain highly negotiated, with 2024 transactions reflecting deal term shifts, some of which are benefiting buyers while others favor sellers. Motivated buyers were more willing to meet valuation expectations, while longer dealmaking timeframes and the robust due diligence of sellers’ thoroughly populated data rooms allowed sellers to leverage higher levels of buyer comfort for less post-closing risk. But buyers held their ground in other areas. See all the data in our 2025 M&A Deal Terms Study that analyzes over 2,200 private-target acquisitions that closed from 2019-2024, highlighting nuanced trends for deal parties entering negotiations.
Deal Sizes Surge as Private Equity Buyers Step Up Activity
Considering rising liquidity pressures, the number of jumbo deals (valued over $750 million in our study) has nearly tripled from 2023, a trend visible across public and private markets. This rise is partly due to fewer earnouts, with sellers using their current leverage to push for higher upfront values. Additionally, private equity buyers – who increased activity in 2024 – typically focus on larger deals, contributing to this trend. While valuation gap issues persisted, utilization of earnouts was well below the 2023 peak. Similarly, the markets continued to see some distressed deals with over 5% of deals including a management carveout.
Given recent Delaware court cases, deal parties will likely continue focusing on operational covenants and diligence standards applicable during earnout performance periods.
Conversely, the number of deals valued under $100 million have decreased by about one-fifth, impacting overall transaction values. Larger deals with more money on the line tend to involve highly negotiated and customized indemnification protections, special escrows, and a particular focus on post-closing claims and purchase price adjustments (PPAs). As found in the SRS Acquiom 2024 M&A Claims Insights Report and the 2024 M&A Working Capital PPA Study, over three-quarters of deals included a special purpose escrow for the PPA, with nearly three in ten deals including one for a stand-along indemnity matter, such as taxes or ongoing litigation.
Earnouts Remain Slightly Elevated as Deal Parties Catch Up to Macroeconomic Conditions
Earnout prevalence remains slightly elevated as valuation gap issues persist, but 2024 did not continue the significant jump in earnouts seen in 2023. While fewer deals may have earnouts, they remain highly complex with 68% of such deals including multiple earnout metrics. There is a trend towards shorter earnout performance periods, with fewer deals (none in our study that closed in 2024) extending beyond four years. Based on data in the SRS Acquiom 2024 M&A Claims Insights Report, earnouts pay about 21 cents on the dollar across all deals with earnouts (excluding life sciences). For deals achieving any earnout level, about half the max earnout dollars are paid.
Given recent Delaware court cases, deal parties will likely continue focusing on operational covenants and diligence standards (e.g. Commercially Reasonable Efforts) applicable during earnout performance periods. As a result, both buyers and sellers must carefully negotiate and document earnout terms to mitigate the risk of disputes and ensure the earnout mechanism operates as intended.
Reps & Warranties Insurance (RWI): a Safety Net?
Overall, despite a slight uptick in RWI usage for 2024 deals, it remains below its 2021 peak, prompting insurers to offer more concessions to increase product attractiveness. Broader market uncertainty and RWI claims history is impacting RWI utilization.
RWI, whose presence on a deal directly impacts indemnification structures, is interestingly having an impact on non-RWI deals, with buyers becoming accustomed to more favorable seller terms even in deals without RWI. Underscored by data, this shows that a merger or purchase agreement is less likely to contain either a “10b-5” representation (no material misstatement or omission) or a “Full Disclosure” representation when there is not a buy-side RWI policy. In fact, in 2024, 85% of deals without RWI contained neither of these seller representations, which is a notable increase from 75% in 2023.
For deals where indemnification protections survived post-closing, the median survival period remained at 12 months.
Additionally, 2024 saw a substantial increase in “walk-away” or no survival of seller’s general representations for both RWI and non-RWI deals. In 2024, 33% of deals were structured as “no survival”. When buyers have recourse against an RWI policy, they may be more likely to agree to a walk-away for the sellers. However, even for deals closed in 2024 without RWI, buyers still agreed to a walk-away on 18% of deals – a 50% increase from 2023. Continued rigorous due diligence may also be driving this trend; the more comfortable the buyer is with the target company’s financials and other diligence items, the fewer post-closing protections they may seek.
For deals where indemnification protections survived post-closing, the median survival period remained at 12 months. Yet, there was a significant and somewhat confounding increase in survival periods shorter than 12 months. Again, this might be stemming from buyers’ confidence coming out of their fulsome diligence reviews.
Conclusion: The Evolving Balance of Power in M&A Deal Terms
The changing M&A landscape has shown that leverage is shifting between buyers and sellers in different ways when it comes to negotiating deals. Looking ahead, macroeconomic and geopolitical conditions, liquidity pressures, and buyer competition, in that order and with a major emphasis on the first, will likely continue to shape the dealmaking landscape, making it essential for market participants to stay informed and agile in their approach.
About the Author
Kip Wallen is a senior director leading the SRS Acquiom thought leadership practice. He leverages his extensive expertise and SRS Acquiom proprietary data to produce resourceful content regularly utilized by market practitioners. Kip has broad experience in M&A and provides guidance on market standards and trends.
Previously, Kip was a Director with the SRS Acquiom Transactional Group, where he collaborated with clients and counsel to negotiate M&A documents including purchase, escrow, payments, and other transactional agreements. Before joining SRS Acquiom, Kip was an attorney with a Denver-based boutique business law firm where he assisted clients with M&A transactions as well as general corporate governance and securities matters.
Kip is an avid supporter of the Colorado Symphony, serving on the Associate Board and Colorado Symphony Fund Board, and the Colorado Rockies. He is an active participant on the American Bar Association’s M&A Committee. In 2016, Kip completed Leadership 20 with the Denver chapter of the Association for Corporate Growth.
Kip received his J.D. from the Sturm College of Law at the University of Denver and an M.S. in Economics, B.S. in Economics and B.A. in International Relations from Lehigh University. He is a member of the Colorado bar.
© 2025 Private Equity Professional | May 6, 2025
