The evolution of M&A deal structures reflects a significant shift in how transactions are negotiated, managed, and closed. We are going through geopolitically volatile times, persistent inflation and regulatory fragmentation in Europe. In response, both strategic and financial players have fine-tuned their contractual tools to ensure that deals remain viable, and to shield against risks.
The most obvious change is the use of earn-outs and price adjustment mechanisms. According to the CMS European M&A Study, earn-outs are now firmly established in Germany, where they are used in a third of private transactions. They are particularly common in the health, technology and energy sectors, where there is structural uncertainty about future returns. The most common formulae are based EBITDA, EBIT and other indicators, which allow buyers to tie prices to real performance.
The increasing use of purchase price adjustments also reflects a more grounded approach from buyers, who prefer to pay for verified results rather than projections. The combined use of PPA´s and earn-outs generates structures which are not only more sophisticated, but also more equitable in contexts where information asymmetry is inevitable.
In transactions without price adjustments, the locked box mechanism has become the new standard for clean, high-trust deals. As the price is fixed based on closed financial states, with limited cash movements between the reference date and closure, the seller gains greater certainty while the buyer benefits from more transparency. Despite this, 48% of European transactions analysed in 2024 used completion account mechanisms, showing that both tools coexist and are used according to the deal profile, urgency and the quality of available financial information.
Another relevant development is the increasing adoption of W&I insurance, whose use has increased by 8% in Europe (14% in Germany), showing that it is no longer an exclusive feature of deals exceeding EUR100 million, but increasingly common in mid-cap transactions, especially when there are private equity firms involved, as a way of transferring residual risk without the need to hold significant amounts in escrow or to enter into lengthy negotiations over post-closure liabilities.
The logic is simple: the easier the closure, the more likely the deal will succeed.
New regulations, more AI and increasingly surgical negotiations.
In parallel to these contractual innovations, the regulatory environment has become tougher. The European Commission received, during 2023, more than 380 merger notifications, and several high-profile deals (such as Microsoft-Activision) were subject to extensive review or structural compromises. Buyers, especially funds, now integrate antitrust analysis from the initial phases of the deal, even when they don´t meet the mandatory threshold.
In addition, there is pressure on GDPR compliance, international taxation and, more recently, ESG. The Directive on corporate sustainability due diligence forces the introduction of human rights and environmental impact assessments, transforming the traditional concept of due diligence into a much wider and collaborative exercise.
In the face of this complexity, the use of legal technology has taken a leap: 32% of LegalTech tools used in M&A already makes use of AI, especially for document reviews, the assessment of contractual risks, and management of vendor due diligence processes. This is not a substitute for legal analysis, but it does improve efficiency and helps uncover hidden contingencies before they become obstacles at closure.
Another noteworthy development is the reinforcement of guarantees in favour of buyers: deadlines for claims are extended, material adverse change clauses are reintroduced, and liability limits are more precise and less ambiguous. Buyers no longer want to know just what they´re buying- they also want to be prepared in case what they´re buying stops making sense.
Finally, in case of conflict, arbitration continues to gain ground as the preferred formula due to confidentiality, technical specialisation and speed. This is particularly relevant in cross-border deals, where local legal systems can generate more uncertainty than trust.
Finalmente, en caso de conflicto, el arbitraje sigue ganando terreno como fórmula preferida por su confidencialidad, especialización técnica y velocidad. Esto es particularmente relevante en deals transfronterizos, donde los sistemas judiciales locales pueden generar más incertidumbre que confianza.
That´s why, at Confianz, we provide tailored advice which helps our clients to make informed, sound decisions. Because every deal carries its own risk, and the structure is part of the strategy.
