For anyone not familiar with mergers, if you sell a company, you rarely get the full purchase price at the closing. Some of it is usually held in an escrow account for a year or so to allow the buyer to see if there are any issues related to the acquired company that would entitle it to some of its money back. The deal might also be structured so that the purchase price is effectively paid in installments called earnouts based on how the company performs after closing. There are a million varieties of these formulas, and they can get very complicated very quickly.
In the past, there was little information about what the parties to a merger should expect related to these post-closing terms. Much of it is deal specific, but we still wanted to have some analytics around what happens in the marketplace on average. It just never existed.
Last week, Shareholder Representative Services released a study that is the first to do a deep dive on analyzing these questions and to give some insight on what actually happens. It goes into detail in investigating the issues around indemnification claims and eventual payouts. This is critical to understanding both the anticipated economics of a deal and how much total work you might expect before the transaction is fully behind you. This information is tremendously valuable to entrepreneurs, investors and buyers of companies and I believe it’s the first time it has ever existed. SRS is in a unique position to do this sort of analysis because of the high volume of escrows and claims that it manages.
The full study is only being made available to customers and business partners of SRS, but for a copy of the summary of the study, click here