What Are the Most Important M&A Deal Terms in 2026? | Joe Prencipe, Prencipe International
Earnouts, termination fees and escrow holdbacks can move more money than the headline price. Joe Prencipe says too many people negotiate them without knowing the market.
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Castro What are the most important M&A deal terms in 2026? Joe Prencipe, Managing Partner at Prencipe International, walks through earnouts, termination fees, and escrow holdbacks, and what he is seeing as current market ranges for each.
About Joe Prencipe: Joe is an M&A attorney who began his career at Freshfields Bruckhaus Deringer and clerked at the U.S. Securities and Exchange Commission. He advises private equity groups, family offices, and strategic acquirers on lower middle market transactions.
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Website: https://www.prencipe.com/
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Topics: M&A deal terms, earnouts, termination fees, escrow holdbacks, term sheet, buy-side protections, selling a business
Disclaimer: Joshua Wilson is a licensed Florida real estate broker (BK3038350) and holds FINRA Series 79 and Series 63 licensure. The PE Podcast is produced by One Iron Network LLC for informational and educational purposes only. Nothing discussed constitutes investment advice, legal or tax advice, a solicitation, or a recommendation to buy or sell any security or to pursue or avoid any transaction. All views and opinions expressed by the host and guests are their own and do not necessarily reflect the positions of One Iron Network LLC, Smooth Stone Capital, any regulatory agency, or any employer. Any performance figures, valuations, or transaction terms discussed are historical, specific to the circumstances described, and are not indicative of future results. Listeners should consult their own legal, financial, and tax professionals before making any business, financial, or transaction decision.
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Joshua Wilson:
So Joe, the standard market deal terms in M&A, like, evolve every year. 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.
Joe Prencipe:
Yeah, absolutely. 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. 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. 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. Now, first about earnouts. The really interesting thing is earnouts are higher than ever. The median earnout is 34%. 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. Man, does that change up your capital stack with how you're handling this acquisition. Now the next thing I'm going to touch on is termination fees. Termination fees from the period of 2023 to 2025 have doubled the average amount of the fees, from 3.8% to 8.2%. 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. And those on the buy side obviously help us so much. The last thing I'm going to quickly touch on here right now is escrow holdbacks. These are another buy-side protection, and protection here, just like the other ones. And so buy-side holdbacks are up 20% in the last two years from what they historically have been. Currently, your buy-side, your escrow holdback is 12.1%. It might not sound like a lot. These numbers are very important when you're dealing with a $50 million deal. And they're up from 10.25%. So, in other words, escrow holdbacks are going up. Big protection, big protectionary measure. If you're not doing it, then take a look over there.
Managing Partner, Prencipe International
Joe Prencipe is a top-ranked international attorney and the Managing Partner at Prencipe International. He started his career in Tokyo practicing M&A, litigation, and business law at the leader of the Magic Circle of top international law firms in the world, Freshfields Bruckhaus Deringer LLP. He also practiced at one of the top-5 largest law firms in the world, Baker McKenzie LLP. Joe summered at Morgan Lewis Bockius LLP, clerked at the U.S. S.E.C. Division of Enforcement, and worked at the Seattle City Attorney's Office.
Joe worked as in-house counsel at several technology businesses, and sold two of them. One of those businesses is the Elon Musk ideated business associated with Richard Branson: Virgin Hyperloop One. Joe and his colleagues, John McLear and Chris Leach, founded the first advanced wearables company (exc. step trackers) - before Apple and Samsung. They sold part of this business to a listed Japanese company ($600m market cap). Joe also co-founded and built the ghost kitchen business Sizzle, which they sold to major ecommerce player GoPuff ($15b valuation).