Middle Market M&A SurveyBook - Seyfarth Shaw

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Middle MarketM&ASurveyBook2020 Survey of Key M&A Deal Terms

IntroductionSeyfarth Shaw LLP is pleased to present the 7th edition of its Middle MarketM&A SurveyBook (“Survey”) which analyzes key transaction terms from morethan 100 middle market private target acquisition agreements signed in 2019.1The information presented is intended to serve as a guide to buyers, sellers,and deal professionals on “what’s market” when negotiating these terms inprivate target acquisition agreements in 2020.The Survey focuses on key deal terms, including those comprising the “indemnity package”included in almost all private target acquisition agreements to address a seller’s potentialpost-closing liability to a buyer and to set the parameters of a buyer’s ability to claw backpurchase price from a seller. Each deal, of course, has unique facts and circumstances thataffect the negotiation of the acquisition agreement, including, significantly, the relativeleverage of the buyer and seller. It is nonetheless helpful when negotiating an acquisitionagreement to have a strong understanding of where the terms of your “indemnity package”fall in the current market spectrum.Given the substantial and continued growth in the use of representation and warranty(“R&W”) insurance in private middle market M&A transactions, in this year’s Survey, wehave continued to track data from deals that included R&W insurance separately from dealswhere no R&W insurance was utilized. Approximately 55% of the transactions reviewed forthe Survey included R&W insurance, compared to approximately 40% of the transactions in2018. Buyers increasingly use R&W insurance in acquisition proposals to make their bids morecompetitive and attractive to sellers. Not surprisingly, the terms of the typical indemnitypackage differ substantially between transactions in which R&W insurance is utilized andnon-R&W insurance deals. For example, the indemnity escrow amount and indemnity capsize are typically drastically lower in transactions that use R&W insurance as comparedto transactions that do not use such insurance. Similar to 2018, in 2019 we saw a growingnumber of “no survival” private target acquisitions, in which the buyer’s only recourse forbreaches of representations and warranties was to the R&W insurance policy, or to an escrowrelated to the amount of the policy deductible, and then to the R&W insurance policy.Again this year, the Survey also considers the number of private target acquisitionagreements that included “fraud” exceptions to certain limitations on buyers’ indemnificationrights and remedies, such as caps and baskets, and whether and how “fraud” was definedacross those transactions.Looking through a broader lens, 2019 presented a slight drop in the number, and theaggregate value, of US deals compared to 2018. However, 2019 was historically the third bestyear in US deal making in the last two decades. 2 Despite a prolonged period of uncertaintyrelated to the UK’s Brexit plans, concerns about US interest rates, US-China trade tensions,and a growing consensus that after a bull run, markets and the economy were approachingthe top of the cycle, the sustained high level of deal activity continued through 2019.3These concerns, the characteristic ambiguity around the US presidential election, and nowthe unprecedented COVID-19 pandemic (“COVID-19”) and its cataclysmic impact on global andUS markets, will undoubtedly have at least a short-term negative impact on M&A activity in2020. Prior to COVID-19, dealmakers were cautiously optimistic that steady economic growth,continued low interest rates, and record levels of capital would sustain the M&A momentum1 April 2020

through 2020,4 5 but the impact of COVID-19 has dampened any optimistic mood aroundM&A activity in the short-term and possibly longer.As of the date of publication of this Survey, the length and depth of the long-term economicimpact of COVID-19 on the US and global economies is highly uncertain and the full scaleof the global supply chain disruptions is unknown. In addition, as a result of efforts to stopthe spread of COVID-19, including “shelter in place” and “social distancing” initiatives, manysegments of the economy have been shuttered entirely for a period of time which will resultin a spike in the unemployment rate, among other adverse ramifications. The initial forecastsof many economists expect a significant contraction in the US economy through at least thesecond quarter of 2020, with the hope of a bounce back in the latter part of the year.6 Thissentiment ties to the optimism by some that dealmakers are merely pausing transactionsduring the current period of uncertainty.7We hope that you find the information presented in this Survey valuable, and we welcome theopportunity to further discuss our findings with you.What’s Inside:Key Indemnity Deal Terms Surveyed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 3Fraud Exceptions and Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 17Choice of Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 18MAE Provisions in the Wake of COVID-19. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 192020 Hart-Scott-Rodino Act Thresholds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 20Navigating Immigration Compliance Due Diligence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 21Pension Liabilities post-Sun Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 22California Consumer Privacy Act: A New Source of Risk. . . . . . . . . . . . . . . . . . . . . . . . Page 23Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 25Seyfarth’s Leading Middle Market M&A Practice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 26Resources for Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 27For purposes of this Survey, “middle market” means transactions with a purchase price of less than 1billion, and “purchase price” means the total cash consideration paid by the buyer in a transaction butdoes not include contingent purchase price payments (e.g., earnouts). This Survey does not include anytransactions that involved the payment of consideration other than cash.1 The State of the Deal, M&A Trends 2020, Deloitte.2 M&A in 2020, Morgan Stanley.3 2020 Global M&A Outlook, J.P. Morgan; M&A in 2020, Morgan Stanley.4 Year-End Review and 2020 Outlook, PWC.5 U.S. Braces for Sharp Economic Downturn as Coronavirus Bears Down, The Wall Street Journal.6 PE Clients See Opportunity Despite Coronavirus Effects, Law360.7 M&A SurveyBook: 2020 Survey of Key M&A Deal Terms 2

Indemnity Escrow AmountEscrow Amount as a Percentageof Purchase PriceNO R&W INSURANCE 5%25%0%5% 5 – 10%8.3%10%50% 10 – 15%16.7% 15%0%Percentage of Deals Surveyed Providing for Indemnity EscrowOBSERVATIONS Approximately 25% of the non-insured deals surveyed provided for an indemnity escrow(as compared to approximately 37.5% in 2018). The reduction in the number of dealsproviding for indemnity escrow is likely as a result of the increase in the number of“no survival” deals. The median escrow amount in 2019 for the non-insured deals surveyed was approximately10% of the purchase price (consistent with 2018), with approximately 83% of the noninsured deals having an indemnity escrow amount of 10% or less but only approximately25% of the non-insured deals having an indemnity escrow amount of 5% or less.* IMPORTANT NOTE: Data included under “no R&W insurance” sections reflects deals where no R&Winsurance was utilized, or where we were unable to confirm whether R&W insurance was used based on areview of the acquisition, as confirmed by the acquisition agreement. Data included under “R&W insurance”sections reflects deals where R&W insurance was used.3 April 2020

Indemnity Escrow AmountEscrow Amount as a Percentageof Purchase PriceR&W INSURANCE 5%92%5%4% 5 – 10%0%10%4% 10 – 15%0% 15%0%Percentage of Deals Surveyed Providing for Indemnity EscrowOBSERVATIONS Approximately 43% of the insured deals surveyed provided for an indemnity escrow(as compared to approximately 55% in 2018). The reduction in the number of dealsproviding for indemnity escrow is likely as a result of the increase in the number of“no survival” deals. The median escrow amount in 2019 for the insured deals surveyed was approximately0.6% of the purchase price (as compared to approximately 0.9% in 2018). It is plain tosee the dramatic impact that R&W insurance has on the indemnity escrow amount(0.6% versus 10% for non-insured deals). The vast majority of insured deals had an indemnity escrow amount of less than 5% and,of those deals, approximately 91% had an escrow amount of 1% or less. This is consistentwith the prevailing R&W insurance structure of including a retention (deductible) equalto approximately 1% of deal value. Depending on the negotiating leverage of the parties,the indemnity escrow will typically cover a portion or all of the retention under the R&Wpolicy, and also act as the indemnity cap under the purchase agreement for breaches ofrepresentations and warranties.M&A SurveyBook: 2020 Survey of Key M&A Deal Terms 4

Indemnity Escrow PeriodNO R&W INSURANCEEscrow Period (months) 12120%50% 12 – 1833.3%1816.7% 18 – 240%240% 240%Percentage of Deals Surveyed Providing for Indemnity EscrowOBSERVATIONSOf the non-insured deals surveyed which provided for an indemnity escrow: 100% had an indemnity escrow period of 12-18 months. The median indemnity escrow period was 13.5 months. This reflects a decrease from2018 and shows a trend of continuing seller strength during 2019.5 April 2020

Indemnity Escrow Period *R&W INSURANCE0%Escrow Period (months) 121266.7% 12 – 1812.5%20.8%18 18 – 240%240% 240%Percentage of Deals Surveyed Providing for Indemnity EscrowOBSERVATIONSOf the insured deals surveyed which provided for an indemnity escrow: 100% had an indemnity escrow period of 12-18 months. The median indemnity escrow period was 12 months. This reflects a decrease from2018 and shows a trend of continuing seller strength during 2019.* IMPORTANT NOTE: A limited number of the deals surveyed had escrow periods of 24 months or greater,and were not included for purposes of the calculations in this chart due to the deal specific nature of suchtransactions that caused the inclusion of extended escrow periods. This highlights that the specific factsand circumstances of each deal will often carry the day in deal negotiations even if “not market.”M&A SurveyBook: 2020 Survey of Key M&A Deal Terms 6

Representation & WarrantyGeneral Survival PeriodLength of Survival Period (months)NO R&W INSURANCE29.1%00% 1233.3%126.3% 12 – 181825% 18 – 242.1%242.1% 242.1%Percentage of Deals SurveyedOBSERVATIONS The median general survival period for non-insured deals surveyed was 12 months.This reflects a decrease after having consistently remained at 15 months since 2013. Only approximately 6% of deals surveyed had survival periods of greater than 18months, which is generally consistent with the results from prior years where suchdeals represented only a small percentage of the total number of deals surveyed. Note that the data above is somewhat skewed due to the increase in the number of“no survival” deals. Without taking such “no survival” deals into account, approximately47% of the deals surveyed had a 12 month general survival period, approximately 9%had a survival period of more than 12 and less than 18 months, approximately 35% hada survival period of 18 months, and the median survival period would be 15 months,which is consistent with prior years.7 April 2020

Representation & WarrantyGeneral Survival PeriodLength of Survival Period (months)R&W INSURANCE41.4%00% 1236.2%126.9% 12 – 1813.8%180% 18 – 241.7%240% 24Percentage of Deals SurveyedOBSERVATIONS The median general survival period for insured deals surveyed was 12 months, whichis consistent with 2018 and 2017. Approximately 41% of insured deals were “no survival” deals in which the seller hadno obligation to indemnify the buyer for breaches of the general representations andwarranties. This represents an approximately 15% increase from 2018 in “no survival”deals. Of course, the R&W insurance policy makes a “no survival” framework morepalatable for a buyer as the policy typically provides coverage for breach of generalrepresentations for three years. The continuing increase in “no survival” deals reflectsan even greater reliance on R&W insurance as the primary remedy for buyers underpurchase agreements for breaches of representations and warranties. Note that the data above is somewhat skewed due to the increase in the number of“no survival” deals. Without taking such “no survival” deals into account, approximately59% of the deals surveyed had a 12 month general survival period, approximately 13%had a survival period of more than 12 and less than 18 months, approximately 25% hada survival period of 18 months, and the median survival period would be 12 months,which is consistent with prior years.M&A SurveyBook: 2020 Survey of Key M&A Deal Terms 8

Carve Outs to GeneralSurvival Period*NO R&W INSURANCECarved Out RepresentationsBROKERS FEESCAPITALIZATION (STOCK DEALS ONLY)DUE AUTHORITYDUE ORGANIZATIONEMPLOYEE BENEFITSENVIRONMENTALINTELLECTUAL PROPERTYNO .2%91.2%Percentage of Deals Surveyed in Which ApplicableRepresentation Was Carved OutOBSERVATIONSEmployee Benefits The percentage of non-insured deals surveyed that carved out representations andwarranties regarding employee benefits was approximately 38% in 2019.Environmental The percentage of non-insured deals surveyed that carved out representations andwarranties regarding environmental matters was approximately 38% in 2019.* IMPORTANT NOTE: The calculations for the charts on pages 9 and 10 do not include no survival deals whererepresentations and warranties do not survive as a general matter (as the concept of carve-outs to survivalperiods is not applicable to such deals).9 April 2020

Carve Outs to GeneralSurvival Period*R&W INSURANCECarved Out RepresentationsBROKERS FEESCAPITALIZATION (STOCK DEALS ONLY)DUE AUTHORITYDUE ORGANIZATIONEMPLOYEE BENEFITSENVIRONMENTALINTELLECTUAL PROPERTYNO .5%58.8%Percentage of Deals Surveyed in Which ApplicableRepresentation Was Carved OutOBSERVATIONSEmployee Benefits The percentage of insured deals surveyed that carved out representations andwarranties regarding employee benefits was approximately 24% in 2019.Environmental The percentage of insured deals surveyed that carved out representations andwarranties regarding environmental matters was approximately 24% in 2019.Due Authority, Due Organization and Capitalization Approximately 65% of insured deals surveyed carved out representations andwarranties regarding due authority and due organization, as compared to almost100% of non-insured deals. Approximately 57% of insured deals surveyed carved outrepresentations and warranties regarding capitalization (with respect to stock deals),as compared to approximately 78% of non-insured deals. In insured deals, the R&W policy generally provides six years of coverage forfundamental representations.M&A SurveyBook: 2020 Survey of Key M&A Deal Terms 10

Indemnity Basket TypeNO R&W INSURANCEingppTiBASKETTYPEuctibleThreshold/30.6%Tr u edDe72%TrueDeductible69.4%OBSERVATIONS Approximately 75% of non-insured deals surveyed provided for an indemnity basket,compared to approximately 90% in 2018, which is likely due to the larger number of “nosurvival” deals in 2019 deals surveyed. Taking out the “no survival” deals, approximately97% provided for indemnity baskets. Of the non-insured deals providing for an indemnity basket, approximately 31% werestructured as threshold/tipping baskets and approximately 69% were structured asa deductible, which is consistent with 2018.11 April 2020

Indemnity Basket TypeR&W INSURANCE9.1%rTheldsho/ Tipping28%Threshold/TippingBASKETTYPEbleTr u e D etiduc90.9%OBSERVATIONS Approximately 57% of insured deals surveyed provided for an indemnity basket,compared to approximately 73% in 2018, which is likely due to the larger number of“no-survival” deals in 2019 deals surveyed. Taking out the “no survival” deals,approximately 91% provided for indemnity baskets. Of the insured deals providing for an indemnity basket, approximately 9% werestructured as threshold/tipping baskets and approximately 91% were structuredas a deductible, which is consistent with 2018.M&A SurveyBook: 2020 Survey of Key M&A Deal Terms 12

Indemnity Basket SizeNO R&W INSURANCETrue Deductible Basket Size4% 0.25 – 0.5%24% 0.5 – 0.75%16% 0.75 – 1.0%32% 1.0 – 1.25%0% 1.25 – 1.5%8% 1.5%16%Percentage of DealsSurveyed Providing for aTrue Deductible Basket0 – 0.25%Size of Tipping Basket as aPercentage of Purchase PriceSize of True Deductible Basket asa Percentage of Purchase Price0 – 0.25%Threshold/Tipping Basket Size18.2% 0.25 – 0.5%36.4% 0.5 – 0.75%27.2% 0.75 – 1.0%18.2% 1.0 – 1.25%0% 1.25 – 1.5%0% 1.5%0%Percentage of DealsSurveyed Providing for aTipping BasketOBSERVATIONS The median basket size in non-insured deals surveyed in 2019 was 0.7% of the purchaseprice, which is consistent with 2018. Approximately 76% of deals with a deductible had a basket size of 1% or less, andapproximately 44% had a deductible basket size of 0.75% or less. 100% of deals with a tipping basket had a basket size of 1% or less, and approximately82% had a tipping basket size of 0.75% or less.13 April 2020

Indemnity Basket SizeR&W INSURANCETrue Deductible Basket Size6.7% 0.25 – 0.5%79.9% 0.5 – 0.75%6.7% 0.75 – 1.0%6.7% 1.0 – 1.25%0% 1.25 – 1.5%0% 1.5%0%Percentage of DealsSurveyed Providing for aTrue Deductible BasketSize of Tipping Basket as aPercentage of Purchase PriceSize of True Deductible Basket asa Percentage of Purchase Price0 – 0.25%Threshold/Tipping Basket Size0 – 0.25%66.7% 0.25 – 0.5%33.3% 0.5 – 0.75%0% 0.75 – 1.0%0% 1.0 – 1.25%0% 1.25 – 1.5%0% 1.5%0%Percentage of DealsSurveyed Providing for aTipping BasketOBSERVATIONS The median basket size in insured deals surveyed in 2019 was 0.5% of the purchaseprice, which is consistent with 2018. Approximately 87% of deals with a deductible had a basket size of 0.5% or less, andapproximately 93% had a deductible basket size of 0.75% or less. 100% of deals with a tipping basket had a basket size of 0.5% or less.M&A SurveyBook: 2020 Survey of Key M&A Deal Terms 14

Indemnity Cap SizeCap Size as a Percentageof Purchase PriceNO R&W INSURANCE 5%2.8%5 – 10%11.1%38.8%10%13.9% 10 – 15%5.6%15%0% 15 – 20%22.2%20%5.6% 20%Percentage of Deals Surveyed Providingfor Indemnity CapOBSERVATIONS Approximately 75% of non-insured deals surveyed had an indemnity cap, compared toapproximately 90% in 2018. The decrease in number of deals with an indemnity cap wasdue to the increase in “no survival” deals, which removed the need for an indemnity caprelated to representations and warranties. Without taking the “no survival” deals intoaccount, approximately 97% provided for an indemnity cap. The median indemnity cap for non-insured deals surveyed was 10% in 2019, which is thesame as 2018. Approximately 53% had an indemnity cap of 10% or less, and approximately 72% had anindemnity cap of 15% or less.15 April 2020

Indemnity Cap SizeR&W INSURANCE83.3%Cap Size as a Percentageof Purchase Price 5%5 – 10%11.1%10%2.8% 10 – 15%2.8%15%0% 15 – 20%0%20%0% 20%0%Percentage of Deals Surveyed Providingfor Indemnity CapOBSERVATIONS Approximately 62% of insured deals surveyed had an indemnity cap, compared toapproximately 78% in 2018. The decrease in number of deals with an indemnity cap wasdue to the increase in “no survival” deals, which removed the need for an indemnity caprelated to representations and warranties. Without taking the “no survival” deals intoaccount, approximately 97% provided for an indemnity cap. The median indemnity cap for insured deals surveyed was 0.5% in 2019, which is thesame as 2018. As is evident when compared to non-insured deals, the use of R&W insurance willtypically greatly reduce the seller’s indemnity cap under the purchase agreement (thisis due to the fact that the buyer can seek recourse under the R&W insurance policy).M&A SurveyBook: 2020 Survey of Key M&A Deal Terms 16

Fraud Exceptions and DefinitionsPrivate target middle market acquisition agreements often include fraud exceptionsto certain limitations on buyers’ indemnification rights and remedies, such as caps andbaskets. Unless “fraud” is carefully defined in the agreement, however, a seller may finditself subject to post-closing liability for more than intended by the fraud exception. In thisyear’s Survey, we have continued to analyze the percentage of deals that included fraudcarve outs to certain limitations on liability, and continued to track the percentage of dealsthat limited fraud to intentional acts, and the percentage of deals that limited fraud to therepresentations and warranties made in the acquisition agreement.NO R&W INSURANCER&W INSURANCEFraud ExceptionApproximately 83% of non-insured dealssurveyed in 2019 included fraud exceptionsto certain indemnity provisions of theagreement. This is consistent with 2018.Approximately 98% of insured dealssurveyed in 2019 included fraud exceptionsto certain indemnity provisions of theagreement. This is consistent with 2018.Fraud DefinedOf the non-insured deals that included afraud exception, only approximately 31%of these deals defined the term “fraud,”compared to approximately 37% in 2018.Of the insured deals that included a fraudexception, approximately 60% of thesedeals defined the term “fraud,” comparedto approximately 65% in 2018.Of the non-insured deals that definedthe term “fraud,” approximately 60%limited fraud to those representations andwarranties contained in the agreement only,compared to approximately 39% in 2018.Of the insured deals that defined the term“fraud,” approximately 68% limited fraudto those representations and warrantiescontained in the agreement only, comparedto approximately 67% in 2018.Of the non-insured deals that defined theterm “fraud,” approximately 80% includedan intent prong in the fraud definition,compared to approximately 81% in 2018.Of the insured deals that defined the term“fraud,” approximately 63% includedan intent prong in the fraud definition,compared to approximately 77% in 2018.17 April 2020

Following are a few examples of fraud definitions based on the agreements reviewed for theSurvey, ordered from most to least seller protective. Note that the most seller protectiveof the definitions also limits fraud to a particular universe of individuals with actualknowledge of the fraud. “Actual Fraud” means, with respect to any Person, the intentional (and not constructive)fraud of such Person effected by such Person making a representation or warrantycontained in this Agreement with the actual (and not constructive) knowledge of suchPerson that such representation or warranty was false when made (as opposed to themaking of a representation or warranty negligently, recklessly or without actual knowledgeof its truthfulness) and which was made with the intention of inducing the Person to whomsuch representation or warranty was made to enter into or consummate the Transactionsand upon which Recipient has reasonably relied to its detriment. “Actual Fraud” means actual and intentional fraud with respect to the representationsand warranties expressly set forth in this Agreement that is committed by the partymaking such representations or warranties. “Fraud” means: (a) a false representation of a material fact by a Person; (b) made withknowledge or belief of its falsity; (c) with the intent of inducing another Person to act,or refrain from acting, to such other Person’s detriment; and (d) upon which such otherPerson acted or did not act in reliance on the representation, with resulting Losses, andwhich shall expressly exclude any other claim of fraud that does not include the elementsset forth in this definition, including constructive fraud, negligent misrepresentation orany similar theory. “Fraud” means actual common law fraud under applicable law.Choice of Governing LawThe Survey results revealed that Delaware and New York are the most popular “governinglaw” choices.NO R&W INSURANCER&W INSURANCEOf the non-insured deals surveyed in 2019,the governing law for 50% was Delaware,15% was New York, and 35% was “Other.”Of the insured deals surveyed in 2019, thegoverning law for 74% was Delaware, 10%was New York, and 16% was “Other.”M&A SurveyBook: 2020 Survey of Key M&A Deal Terms 18

MAE Provisions in the Wake ofCOVID-19As a result of the recent unprecedented outbreak of the novel coronavirus (“COVID-19”),dealmakers and their advisors have yet another set of issues to address in connection withpending and future M&A transactions. While the outbreak and its impact is still evolving,it’s clear that there will be at least short-term consequences for M&A transactions and theway they are approached.MAE PROVISIONSFor a buyer in the midst of a pending M&A transaction, one of the first questions thatcomes to mind is its ability to walk away from a pending acquisition of a target that hassuffered or may suffer potentially grave consequences caused by COVID-19; while sellers,on the contrary, are looking at ways to force nervous buyers to close. In their competinganalysis, the first stop for parties in a pending M&A transaction will be to review closingconditions, termination rights, and the definition of “material adverse effect” (“MAE”)included in their purchase agreement, including whether a pandemic or other health event isexcluded from the determination of whether an MAE has occurred.As a general matter, it is a very tall order for buyers to prove an MAE has occurred in anyM&A transaction. Until the recent case of Akorn, Inc. v. Fresenius Kabi AG, the Delawarecourts had never ruled that an MAE had occurred in an M&A transaction. In Akorn, theDelaware Court of Chancery confirmed that only a serious and substantial downturn inthe business which is “durationally significant” could be deemed an MAE and a “short-termhiccup in earnings” will not qualify; such a perspective needs to be “measured in yearsrather than months.” At this point, not enough time has passed yet to determine withany certainty whether the prevalence of the adverse impact resulting from COVID-19 willremain long enough to warrant finding an MAE. Of course, this could change over timedepending on the staying power of the pandemic and its negative ramifications. It should benoted that buyers may also be able to look to the “impairment clause” (if any) of the MAEdefinition (i.e., whether a material adverse effect on the ability of the target to perform itsobligations under the M&A agreement or to otherwise close the transaction has occurred)for relief as certain breaches by the target of its covenants under the M&A agreementcould trigger this clause.Given the current circumstances surrounding COVID-19, in negotiating future M&A deals,it would be prudent for sellers to push for express carve outs regarding pandemics andpublic health events from the definition of the MAE, and also from certain purchaseagreement covenants, to make it completely clear that such events cannot be used as an“out” for buyers via an MAE or otherwise. Buyers, on the other hand, will contend thatthe long-term impact of COVID-19 and the possibility of other similar outbreaks remainsunclear, and if there is a long period of time between signing and closing that they need theability to analyze the ongoing and evolving impact of COVID-19 during the interim periodand, at a minimum, buyers should require a disproportionate effects qualifier if they acceptany such carve out to the MAE definition at all.Read more in our Legal se-agreements-in-the-wake-of-covid-19.html19 April 2020

2020 Hart-Scott-Rodino ActThresholdsThe Hart-Scott-Rodino (HSR) Act requires that parties to transactions for the acquisitionof voting securities or assets that exceed certain thresholds notify the Federal TradeCommission (“FTC”) and U.S. Department of Justice (“DOJ”) of the proposed transaction,pay the required fee, and observe a 30 day waiting period before closing so that theagencies can review the deal for potential anticompetitive effects. Effective February27, 2020, transactions with a value greater than 376 million are generally reportableregardless of the annual net sales or the value of the total assets of the acquiring andacquired entities, while transactions with a value greater than 94 million but less than 376 million are generally reportable if one party to the transaction has annual net salesor total assets valued at 18.8 million or more and the other party has annual net salesor total assets valued at 188 million or more.The HSR rules provide four additional reporting thresholds: in 2020, parties must reportthe acquisition of (A) voting securities valued at 188 million or greater but less than 940.1 million; (B) voting securities valued at 940.1 million or greater; (C) 25% of thevoting securities of an issuer, if 25% (or any amount above 25% but less than 50%) is valuedat greater than 1.88 billion; and (D) 50% of the voting securities of an issuer if valued atgreater than 94 million. The filing fees associated with an HSR filing range between 45,000 an

M&A SurveyBook: 2020 Survey of Key M&A Deal Terms 2 through 2020,4 5 but the impact of COVID-19 has dampened any optimistic mood around M&A activity in the short-term and possibly longer. As of the date of publication of th

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