European M&A bounced back to pre-pandemic levels

2021 saw European M&A booming, with a confident return to pre-pandemic levels and normal deal behaviour resuming in the majority of transactions, according to CMS.

CMS observed that ”normal” deal metrics applied in most transactions, with increased earn-outs, a retreat from the ”buyer friendly approach” observed in 2020.

The study reveals that the primary deal driver for transactions continues to be buyers entering a new market (43%). Over a third (36%) of deals were the acquisition of know-how or acqui-hire acquisitions.

There was also a notable increase in deals involving the acquisition of a competitor (32%), up 10% on 2020 (22%).

Signs of a return to the pre-pandemic status quo

  • Significant increase in earn-out structures – the use of these structures jumped from 5% in 2020 to 26% in 2021, indicating a general move to ensure that the price paid for a business is measured over a longer period than purely by reference of the financial years dominated by the pandemic
  • PPA provisions return to pre-pandemic levels – the number of transactions featuring purchase price adjustment provisions returned to 47%, just above the 2010-2020 average of 45%, suggesting that a greater proportion of buyers are able to insist on PPA provisions
  • Shorter limitation periods – two-thirds of transactions now have a limitation period of 12-24 months, marking a change from 2021’s findings that limitation periods had increased
  • De minimis and basket sizes return to market norm – applying in the majority of transactions (74% and 67% respectively)
  • Increase in liability caps – the level of liability caps applying to transactions increased significantly in 2021. Deals where the cap was equal to the purchase price remained constant at 30%, but those with a cap of less than 10% increased significantly to 22%, from 16% in 2020
  • Use of locked box transactions – a large increase in non-PPA deals (59% in 2021 vs 51% in 2020)

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