Clyde & Co Launches 2015 Middle East Deal Study

Profession:Clyde & Co

M&A highlights

A "seller friendly market": in terms of risk allocation, the 2015 Deal Study continues to provide evidence that sellers are able to negotiate favourable deal terms. We remain of the view that the Middle East is a seller friendly market. Increased market confidence and the enthusiasm of new entrants to gain a foothold in the region could all be reasons for this trend. Non-cash consideration a rarity: there was no significant change in this area with 70% of M&A deals having an all cash consideration (compared to 30% non-cash or a combination of assets and/or equity consideration). This reflects in part the difficulty regional buyers face when issuing shares as non-cash consideration. See page 7. Greater use of purchase price adjustments: In 53% of the deals reviewed there was a form of purchase price adjustment (up from 39% in our previous Deal Study). Where the purchase price was subject to adjustment, most commonly this was based on either completion accounts or a locked box mechanism, (with earn-out mechanisms being relatively rare). See pages 7 - 8. Security for claims: there was a slight increase from 34% to 41% of M&A deals that contained security for the buyer in the event of a claim against the seller. Most commonly this came in the form of the right to set off against deferred consideration. The second most common form was the retention of a specific amount of the purchase price. See page 10. Limitations on sellers' liability: there was no significant change in this area with limitations on the sellers' liability included in 61% of M&A deals. Where there were limitations, the liability cap was less than the total amount of the purchase price in 47% of M&A deals (with 26% being less than half the amount of the purchase price). There was also widespread use of "de minimis", "baskets" and other common limitations on liability. See pages 15 - 16. The Middle East continues to show signs of being a sellers' market in terms of risk allocation.

Split signing and completion: there was no significant change in this area with 74% of M&A deals containing a split signing and completion. 50% of M&A deals took between one to three months to complete (due, in large part, to the fact that share transfers in the Middle East often require regulatory/procedural consents). This throws up a host of related issues such as walk away rights and management of the target during this period. See pages 18 - 19. Business transfers remain...

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