Market studies, such as the Private Target M&A Deal Points Study by the U.S. American Bar Association (ABA) which has been used extensively by us when negotiating M&A deals in recent years (along with some other key studies) provide critical information that can be used in a variety of ways during negotiations.
The Private Target M&A Deal Points Study by the ABA, for example, analyzed publicly available acquisition agreements for transactions for which definitive agreements were executed and/or completed in 2020 and the first quarter of 2021 that involved private targets being acquired by public companies, are a valuable resource for parties involved in transaction negotiations. They provide detailed information on the terms and conditions that are typically included in similar deals, as well as any trends or patterns that have emerged in the market. The information accumulated from various deals and presents the range of possibilities as well as the common mechanisms and provisions set out in such transactions.
One of the main benefits of using a market study is that it allows the parties to benchmark their proposed deal against similar deals in the market. This can provide a clear understanding of what is considered to be a fair and reasonable deal in the current market (i.e., the “market standard”). For example, if the market study shows that similar deals typically include a certain type of representation and warranty, or a specific indemnification provision, this can help the parties to understand what is considered standard in the industry and can inform their negotiations.
Another benefit of market studies is that they can help to identify potential areas of disagreement or negotiation. For example, if a market study shows that certain terms or conditions are typically included in similar deals, but are not present in the proposed deal, this can flag these as areas where the parties may need to negotiate further. For example, if the market study shows that similar deals typically include a specific provision for termination rights, but the proposed deal does not, this could be a point of negotiation.
Market studies can also be used as a tool to support or refute negotiating positions. For example, if one party is proposing a certain term or condition that is not typically included in similar deals (or not ‘standard’ in other words), they can use data from a market study to support their position or leverage agreeing to such position in return for other compromises in their benefit. They can demonstrate that their proposal is consistent with market trends, or that it is necessary to protect their interests. On the other hand, if the other party is proposing a term or condition that is not typical, the party can use data from the market study to refute the proposal and demonstrate that it is not standard in the market.
In conclusion, market studies can provide valuable information that can be used to make informed decisions during the negotiation process, identify potential areas of disagreement, and support or refute negotiating positions. Market studies can also be applied to transactions of various kinds, including venture capital investments, mergers and acquisitions, and large-scale commercial transactions. They can help parties to understand what is considered to be a fair and reasonable deal in the current market and can provide a useful benchmark for the proposed deal.
