With the seeming full return of the public M&A market, we thought it was an opportune moment to reflect briefly on a number of recent trends in deal terms. The non-exhaustive list below is intended more as an observation rather than an analysis or judgment on the propriety of any of the terms. Some of the trends are fully developed, while others are nascent; either way, dealmakers should be aware of these market developments as they consider their upcoming deals:

• 1. Deal Certainty — As we argued 18 months ago, the unexpected developments in deal certainty provisions for strategic and financial buyers in the immediate aftermath of the credit crisis did not represent a new “market” or “deal paradigm” but rather reflected a more thoughtful and nuanced approach to issues of certainty of closing in light of market conditions. While we have continued to see a blurring of some of the techniques from the pre-crash poles of full specific performance (strategic acquirers) and full optionality for a small reverse termination fee (financial buyers), recent evidence has shown a continuing shift towards a return to the traditional bifurcated deal certainty models described above depending on the identity of the buyer. Again, we believe this reflects economic conditions, particularly in the credit markets, with strategic buyers increasingly willing to offer greater certainty because of renewed confidence in the staying power of the current favorable liquidity environment and sellers willing to accept the inherent optionality in the private equity buyer model, relying on the buoyancy of the debt markets and more sizable reverse termination fees to impose economic discipline on a wavering financial buyer.

(more…)