Private equity deal volumes surge

DLA Piper’s eighth annual Global M&A Intelligence Report has been released and in one of the hottest years for M&A on record.

The report found that private equity made up 39% of sellers in M&A auctions last year – up from only 24% in 2020 and 50% of auction buyers – showing that private equity sellers and buyers were most likely to be involved in auctions.

“Over the past year private equity investors have seen the opportunity to capitalise on favourable market conditions, with larger investors preferring auctions. More than half of all large deals surveyed were auctions, compared to only 10% of small deals,” said Grant Koch, Partner, DLA Piper.

The report also found that while there remain key differences in the approach taken by private equity and trade when they transact M&A, there is increasing evidence of the convergence of approach with trade buyers adopting private equity style strategies in the way they execute deals.

This convergence of approach is nowhere more evident than when we look at the continued use of warranty and indemnity insurance, a product which was initially used almost exclusively by financial sponsors but is increasingly also used by strategic buyers, as the general understanding and acceptance of the product by corporates continues to increase. The report found buy-side warranty and indemnity insurance is continuing to be used on large deals. Last year, more than half of large deals used buy-side insurance – compared to just 14% of small deals. Buy-side insurance was used in 67% of large deals where an auction process was run.

“In Australia, the use of buy‑side insurance in deals where private equity is involved is a given and almost a non‑negotiable,” said Jyoti Singh, Partner, DLA Piper Australia.

“In the Asia Pacific market, underwriters are becoming familiar with assets which have previously been 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” Jyoti added.

The report also found that there is an ever increasing number of M&A transactions where pre-sale corporate reoganisations were required at some point in the wider transaction process requiring, input across multiple jurisdictions and specialist practice areas.

Mark Burger, Partner, DLA Piper, said local compliance burdens overlaying global businesses and structures, and the ever-increasing focus on good governance, are driving the need for corporate simplification projects.

“Many stakeholders need to be involved and properly coordinated to achieve the desired outcomes in terms of costs and efficiencies. We are seeing sustained interest from clients to use our innovative and collaborative global technology platforms to manage and deliver these complex projects,” Mark said.

For the 12th consecutive year, DLA Piper was the highest-ranked legal advisor in the world for M&A deal volume, according to Mergermarket's league tables. The firm was involved in 1,104 transactions worldwide in 2021, valued at approximately US$242 billion.