Houlihan Lokey Purchase Agreement Study

Variation: The share of purchases of intangible assets increased by an average of 32% in 2012, compared to 26% in 2011. In contrast, Den Goodwill`s share of acquisition services fell to 31% on average in 2012, down from 38% in 2011. The table below shows the average, median and maximum values of the corresponding compensation terms of the transactions reviewed over the past ten years. In all cases, the size of the numerical values is measured as a percentage of the purchase price. The results of the study are valuable. By assessing the terms of the sales contracts – with an emphasis on the rules of compensation and their link to insurance, guarantees and agreement alliances – the study provides valuable information and benchmarks in the central market and refers to current market trends in relation to the elements of previous iterations of the study. According to a report by Houlihan Lokey on the allocation of purchase prices, the value is greater for identified intangible assets than for unidentified goods. The most frequently identified intangible assets were client-related intangible assets (called in 53 percent of accounts), trademarks and trade names (41%), technologies developed (39 percent) and process-related research and development (9 percent). According to Houlihan Lokey, other intangible assets that were generally included were non-compete clauses, licenses, authorizations and other contracts or agreements.

The study also took into account sales contracts to determine how often the purchase consideration (composed of money, securities or other goods or instruments) is withheld by the seller and paid into an account at the close in order to offer the buyer protection for the future payment of claims. The analysis examined 511 transactions in which the acquisition company was headquartered in the United States and was held to the public. The study uses “purchase consideration,” that is, the sum of the purchase price paid and liabilities assumed in the context of a business combination. The study excludes transactions with financial institutions that have an exceptionally high allocation for intangible assets. 77% of all transactions over the past 10 years had representations and guarantees that survived the conclusion of the agreement. Within this group of transactions, the vast majority of sales contracts analyzed included a basket of receivables, a compensation cap and/or a trust fund. While there is no consensus on what is “fair and normal” or “market” for any of these compensation provisions (each concept would have been widely negotiated and depends on the facts of each transaction), the results of HL`s sales contracts over the past ten years indicate specific trends and patterns. The study examined sales contracts to determine how many agreements contained an aggregated basket of receivables that provided that a seller was not required to exempt losses until the total amount of all such losses exceeded a certain amount (the “basket”).