Europe continues to be a sellers' market. All countries across Europe now apply “seller-friendly” risk allocation techniques, while the US continues to firmly favour the buyer.

These conclusions were published by CMS today in the 12^th edition of its annual European M&A Study, a multi-year analysis of the key legal provisions within M&A agreements. The study is the most comprehensive of its kind and is based on a proprietary database comprising more than 4,600 deals. 

In identifying the primary deal drivers for transactions, CMS revealed that almost half of deals represented buyers entering a new market (46%) or acquisitions of know-how or acqui-hire transactions (41%). The proportion of these transactions both increased since 2018 (32% and 23% respectively). One fifth of the deals represented the acquisition of a competitor. 

Stefan Brunnschweiler, Head of the CMS Corporate/M&A Group, said: “We are seeing demand for deal certainty in the unpredictable macroeconomic context, greater use of clever risk allocation strategies, as well as new cutting-edge technologies benefitting the industry.

The M&A Study 2020 will be a useful guide for those considering transactions in a more and more challenging investment climate.”

Key findings for 2019 include: 

• Upward trend of legal technology tools – AI and document automation were used in numerous of the reviewed transactions, often leading to significant cost savings.
• Rise in popularity of Warranty & Indemnity (W&I) insurance – up by 2% to 19% of all deals but used in almost half of deals valued over EUR 100m. 
• Gradual decline of purchase price adjustments (PPAs) – in 45% of all deals, up one-percentage point from the previous year, but significantly behind the average level for the previous three years. 
• Upward trend of locked box structures continues – in 56% of deals with no PPA, highlighting parties’ wish for as much certainty as possible.
• de minimis and basket provisions becoming the market norm – now applying in majority (73% and 66% respectively) of transactions, most likely reflecting the increasing use of W&I insurance.
• Liability caps determined by deal size and W&I insurance – overall cap in smaller deals most likely to be full purchase price, compared to only 10-25% for larger deals. Additionally, almost half (45%) of W&I deals have caps of less than 10% of the purchase price, compared to only 10% of non-W&I deals.

• In the last five years (2015-2019) CEE has experienced EUR 4.2 billion worth of transactions – nearly half of the total hotel transaction volume (EUR 9.4 billion) achieved by the region in the last 20 years.
• Capital cities remained magnets for investment, experiencing 72% of transactions in CEE between 2015-2019.
• CEE hotel sector peaked in 2019, experiencing unprecedented investment levels of EUR 1.4 billion. Total of 55 hotels changed hands last year, comprising over 10,000 rooms. 
• The average deal size in 2019 was EUR 31 million and average price per room at about EUR 142,000. 
• The region has been experiencing growing diversity of investors in recent years, although in 2019, European investors secured 84% of the total transacted volume.
• Czech Republic remained region’s hotspot, securing EUR 620.4m of investment in 2019 and capturing 43% share of CEE6* market – however investment scenes in Bulgaria and Romania recorded a robust increase, with markets seeing 490% and 212% YOY growth respectively.
• The most popular hotels among investors in 2019 were upper-midscale and upscale hotels, accounting for 42% of transacted volume.
• In 2019, the largest transaction in the CEE region was the purchase of the InterContinental Prague for EUR 225m.
• Nearly EUR 2 billion of transactions where initially expected in 2020, underpinned by several major deals already in progress across the CEE-6 region. However, the completion of these deals is becoming more unlikely due to the growing COVID-19 pandemic. 

Grant Thornton would like to inform you that the Government of the Czech Republic approved the bill of the Ministry of Finance this week to adopt further tax measures in connection with the extraordinary event caused by the spread of the coronavirus (so-called Liberal Aid Package No. 2). We briefly present the individual proposed measures in the following summary: 

Antivirus program: Wage compensation support