Law firm DLA Piper’s eight annual Global M&A Intelligence Report has found that private equity made up 39 per cent of sellers in M&A auctions last year, rising from 24 per cent in 2020, as well as 50 per cent of auction buyers, revealing that private equity buyers and sellers were most likely to be involved in auctions.
Grant Koch, partner at DLA Piper, stated that private equity investors have “seen the opportunity to capitalise on favourable market conditions” over the last 12 months, with “larger investors preferring auctions”.
“More than half of all large deals surveyed were auctions, compared to only 10 per cent of small deals,” Mr Koch said.
While key differences remain in the approach taken by private equity and trade when the transact M&A, the report also found increasing evidence of the convergence of approach with trade buyers implementing private equity style strategies when executing deals.
More evidence of the convergence of approach can be seen through the continued use of warranty and indemnity insurance. This product was originally almost exclusively used by financial sponsors. However, the rates of strategic buyers now using this product has increased due to the acceptance and general understanding of the product increases.
Further findings revealed that buy-side warranty and indemnity insurance being used on large deals is persisting, with more than half of large deals — 67 per cent — using buy-side insurance over the last year, (compared to just 14 per cent of small deals) where an auction process was run.
Another DLA Piper partner, Jyoti Singh, stated:
“In Australia, the use of buy-side insurance in deals where private equity is involved is a given and almost a non-negotiable.”
Ms Singh continued by commenting on underwriters in the Asia-Pacific market “becoming familiar with assets” that have been previously sold subject to W&I insurance which are “then sold again a few years later with the same insurer being asked to underwrite the transaction for the new buyer”.
“This can lead to a very streamlined W&I process and reduce the complexity of the transaction negotiations in this area,” Ms Singh added.
Also revealed in the report was the increasing number of M&A transactions where pre-sale corporate reorganisations were needed at some point in the wider transaction process. This then required input across several jurisdictions and specialist practice areas.
DLA Piper partner, Mark Burger, said local compliance “burdens” overlaying global businesses and structures. The rising focus on good governance are “driving the need for corporate simplification projects,” according to Mr Burger.
“Many stakeholders need to be involved and properly coordinated to achieve the desired outcomes in terms of costs and efficiencies,” Mr Burger added.
“We are seeing sustained interest from clients to use our innovative and collaborative global technology platforms to manage and deliver these complex projects.”
