Over the last decade, M&A transaction values were pushed to all-time highs by the convergence of (i) a considerable migration of capital from public markets to private markets, most notably to private equity funds, (ii) historically low interest rates and inflation rates, (iii) a ubiquitous adoption of representation and warranty insurance (RWI) by M&A participants and (iv) historically low costs of capital in the debt markets.

To compete in this environment, buyers were forced to move expeditiously through due diligence and accept transaction terms that became more seller-friendly each year. As a result, transaction terms, especially in private equity transactions, moved toward a new set of "market deal terms"—a leveraged buyout with "no recourse" to seller (i.e., seller provided expanded representations because buyer's only recourse for a representation breach was under its RWI policy).

Macroeconomic headwinds, including widespread fear of an upcoming recession, and increases to interest rates have slowed M&A markets during the last year. Deal uncertainty has led to a dramatic decrease in transaction value and total number of deals announced. "Busted deals" have been on the rise in 2023 as a result of financing failures and impasses on value. With real interest rates expected to stay at levels that have not been seen since the Great Recession we can expect to see continued disconnects on price.