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Stability is returning to the European M&A market. That is the key finding of the CMS European M&A Study 2010 just released by the CMS organisation. This is the first study to review the European mergers and acquisitions market before and after the collapse of Lehman Brothers, drawing on data from more than 750 M&A deals handled by CMS law firms between 2007 and 2009. The organisation’s transaction experts systematically categorised and analysed the individual contract clauses. The results reflect the behaviour of strategic buyers and sellers as well as private equity investors with regard to the inclusion of specific contractual conditions. Forward-looking trends can also be identified: "Our data demonstrates surprisingly clearly how the distribution of market power between buyers and sellers is becoming more balanced. Post-Lehman, the signs of recovery become clearer and more numerous as time passes," said Dr Thomas Meyding, partner at CMS Hasche Sigle and head of the international CMS Corporate/M&A practice group." The market was heavily weighted towards sellers up to 2007, then shifted dramatically to buyers as the financial crisis unfolded. It is now starting to balance out more between the two," Meyding continued. The study also reveals a tendency towards simpler contracts. There are now fewer purchase price adjustments, fewer non-competes and shorter limitation periods in M&A agreements. At the same time, the study shows buyers and sellers engaging in tougher negotiation of key deal points post-Lehman, such as the closing conditions that must be met after the agreement has been signed in order for the acquisition to go ahead. This often results in bespoke conditions with very specific content. This is consistent with the finding that the use of material adverse change clauses (MAC) increased significantly in 2009 compared with 2008. MAC clauses enable the buyer to withdraw from the purchase if the target company falls substantially in value, or if such a danger exists, due to certain contractually-defined events occurring between signing the agreement and completion of the purchase. The second surprise in the study is that, post-Lehman, the number of price adjustment clauses dropped from 61% (2008) to 48% (2009). This can be explained by the impact of the general economic environment on transactions, with the parties agreeing a lower, but fixed, purchase price acceptable to both sides instead of price adjustment. However, this comes against the backdrop of greater sophistication of purchase price mechanisms when they were used. This is reflected primarily in the increasing use of working capital-related purchase price adjustments and agreement on earn-out provisions, where a contingency payment is triggered by hitting post-acquisition performance targets. "It certainly appears that buyers now price the risk more prudently, relying on their own due diligence, which suggests to us that 2010 will see even more stability returning to the market, clearly favouring strategic investors with strong balance sheets and access to funds," observed Meyding. The numbers and trends vary substantially by region, suggesting that the expected stability may take longer to materialise in some areas than others. The study breaks down its analysis into four European regions: Benelux (Belgium and The Netherlands) Central and Eastern Europe (Bulgaria, Croatia, Poland, Romania, Russia, Slovakia, Czech Republic, Ukraine, Hungary) German-speaking countries (Germany, Austria, Switzerland) Southern Europe (Italy and Spain) France and the United Kingdom are presented as individual categories. The study also includes comparisons with US M&A data. The CMS European M&A Study 2010 is based on in-depth analysis of 763 transactions between 1 January 2007 and 31 December 2009, relating to non-listed private and public companies in Europe. More than 250 transactions relate to 2009. The data used in the study is not publicly available and is based on privately negotiated transactions in which CMS acted as an advisor to either the buyer or the seller. Comparative data from the US was derived from the 2009 Private Target Mergers & Acquisitions Deal Points Study reporting on transactions completed in 2008, produced by the American Bar Association. CMS is the leading M&A law firm in Europe in terms of the number of transactions. After various top placements in 2009, CMS Hasche Sigle again took three first places in the German M&A rankings by Bloomberg, mergermarket and Thomson Reuters for the first quarter of 2010. "The results of our study are unique and representative, since only the CMS organisation has access to this wealth of data in Europe. This is due not only to our expertise and market leadership, but also to our extensive footprint in Europe, which allowed us to produce this study – the only one of its kind in Europe," explained Meyding.
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