Latest / The PE Podcast / What Are the Most Important M&A Deal Terms in 2026? | Joe Prencipe, Prencipe International

Transcript

What Are the Most Important M&A Deal Terms in 2026? | Joe Prencipe, Prencipe International · The PE Podcast

• 0:00
  Joshua Wilson: So Joe, the standard market deal terms in M&A, like, evolve every year.
• 0:04
  Joshua Wilson: Kind of give me maybe the top three M&A terms that experts need to know of what's going on in 2026, moving into 2027.
• 0:14
  Joe Prencipe: Yeah, absolutely.
• 0:14
  Joe Prencipe: The top three that you absolutely need to be paying attention to in your term sheet phase and afterwards are your earnouts, your termination fees, and your escrow holdbacks.
• 0:23
  Joe Prencipe: And you'd be surprised at how many people miss these or negotiate them wrong or don't know how much of each one to ask for.
• 0:31
  Joe Prencipe: And I'm actually going to give you now the numbers, the current market averages in 2026 of what people are doing with these numbers, that you can make sure that you're not basically shortchanging yourself as an investor, as a buyer here.
• 0:45
  Joe Prencipe: Now, first about earnouts.
• 0:46
  Joe Prencipe: The really interesting thing is earnouts are higher than ever.
• 0:49
  Joe Prencipe: The median earnout is 34%.
• 0:50
  Joe Prencipe: That means the seller is obviously, and I'm not going to get all the details here, but that means the seller is obviously going to get paid 34% of the purchase price for the two years after closing.
• 1:02
  Joe Prencipe: Man, does that change up your capital stack with how you're handling this acquisition.
• 1:06
  Joe Prencipe: Now the next thing I'm going to touch on is termination fees.
• 1:10
  Joe Prencipe: Termination fees from the period of 2023 to 2025 have doubled the average amount of the fees, from 3.8% to 8.2%.
• 1:17
  Joe Prencipe: So if you're not having a termination fee provision in your agreement that has around 8.2%, and that's just the average, then you're totally not paying attention to what the market averages are.
• 1:28
  Joe Prencipe: And those on the buy side obviously help us so much.
• 1:31
  Joe Prencipe: The last thing I'm going to quickly touch on here right now is escrow holdbacks.
• 1:37
  Joe Prencipe: These are another buy-side protection, and protection here, just like the other ones.
• 1:41
  Joe Prencipe: And so buy-side holdbacks are up 20% in the last two years from what they historically have been.
• 1:48
  Joe Prencipe: Currently, your buy-side, your escrow holdback is 12.1%.
• 1:51
  Joe Prencipe: It might not sound like a lot.
• 1:54
  Joe Prencipe: These numbers are very important when you're dealing with a $50 million deal.
• 1:58
  Joe Prencipe: And they're up from 10.25%.
• 2:00
  Joe Prencipe: So, in other words, escrow holdbacks are going up.
• 2:04
  Joe Prencipe: Big protection, big protectionary measure.
• 2:05
  Joe Prencipe: If you're not doing it, then take a look over there.