1 in 5 Transactions Have Post Close Claims Higher than 50% of Escrows

1 in 5 Transactions Have Post Close Claims Higher than 50% of Escrows

SRS | Shareholder Representative Services, a provider of post-closing services for private-company mergers and acquisitions, has published its 2013 SRS M&A Post-Closing Claims Study, which analyzes post-closing issues and payouts across 420 private-target acquisitions, comprising $66.7 billion in deal value with $6.7 billion held in escrow and $9 billion in potential earn-out consideration.

The new study presents aggregate data from nearly 700 claims, including data points on specific claim types, claim and escrow payouts, and earn-out milestone achievement rates. Overall, the study shows that two thirds of all deals had issues arise after closing, and one in five deals with claims had exposure exceeding half of the escrow. Additionally, earn-out milestones for technology and other deals outside of the life sciences sector were achieved 50% of the time.

“The SRS Claims Study is instructive for deal makers seeking to mitigate potential post-closing exposures as they negotiate transactions and finalize deal documents,” said Chris Letang, Managing Director and head of SRS’ post-closing claims team. “While it is difficult to avoid all disputes, our data shows that the claims resolution process has become much more efficient, allowing buyers to collect on agreed losses and shareholders to realize final merger consideration on a more timely basis. ”

Additional key findings from the study include:

  • 18% of deals had at least one claim made in the final week of the escrow period.
  • Final escrow releases were delayed due to claims in 30% of deals.
  • 73% of deals with post-closing purchase price adjustment mechanisms saw adjustments, which were more often buyer-favorable than seller-favorable. 27% of adjustments were ultimately modified from the initial amount claimed.
  • 10% of earn-out milestones that were initially claimed as missed eventually resulted in a payout for shareholders.
  • Tax claims became more frequent due to the average target being a more mature taxpayer. In addition, state and local governments have become more aggressive about revenue collection, especially for sales and use taxes.

Click HERE for a free copy of the 2013 SRS M&A Post-Closing Claims Study (you will need to provide some contact information prior to the download).

SRS | Shareholder Representative Services provides post-closing services that safeguard selling shareholders’ interests in private company M&A transactions. As the shareholder representative, SRS manages all post-closing matters, including working capital and other purchase price adjustments, tax reviews, earn-outs, the handling of claims, disputes and litigation, communications with acquirers and selling shareholders, and management and distribution of escrow and expense funds. The firm is headquartered in San Francisco with additional offices in Boston; Denver; and Raanana, Israel (www.shareholderrep.com).

© 2013 PEPD • Private Equity’s Leading News Magazine • 4-30-13

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