Paul Weiss Offers M&A at a Glance for February 2019

M&A activity in February 2019 generally slowed in the U.S. and globally. Deal volume by dollar value[1] decreased by 25.6% to $152.24 billion in the U.S., and by 30.3% to $248.57 billion globally. Further, the number of deals decreased by 47.0% to 367 in the U.S. and by 28.0% to 1,858 globally, representing the lowest monthly values recorded in the history of this publication. The average value of announced public mergers increased by 40.3% to $414.82 million in the U.S., but decreased by 3.2% to $133.78 million globally.  Figure 4.

Strategic vs. Sponsor Activity

Strategic deal volume as … Read more

The Effect of SEC Comment Letters on M&A Outcomes

Recent research on the effectiveness of the SEC’s filing review and comment letter process has focused almost exclusively on reviews of Forms 10-K and other periodic filings. Reviews of filings involving transactions such as mergers and acquisitions (M&A) have received little attention, even though (1) they are a top priority of the SEC and the executives and officers of the filing companies and (2) the SEC scrutinizes every transactional filing of this nature, in contrast to periodic filings, which are reviewed selectively. In our paper, SEC Comment Letters and M&A Outcomes, we examine the impact of one transaction-specific type … Read more

Listing Gaps, Merger Waves, and the Privatization of U.S. Equity Finance

The number of U.S. listed companies declined by almost half between 1996 and 2012, from 8,090 to 4,102, and had risen only slightly, to 4,336, by year-end 2017. However, the real market valuation of these listed companies tripled over the same period, from $10.2 trillion in 1996 to $32.1 trillion in 2017[1], implying that the average market valuation of a U.S. listed firm has increased six-fold over the past two decades. In other words, the U.S. public stock market has become populated exclusively by behemoths. Over the same period, the U.S. has experienced historically high levels of merger … Read more

Skadden Discusses Delaware Trends Affecting M&A and Corporate Litigation

On February 20, 2019, Skadden held a webinar focused on a number of important developments in Delaware corporate law in 2018 and how such developments might affect M&A litigation in 2019. Specifically, the discussion focused on (i) the increasing importance of books and records demands and litigation under 8 Del. C. § 220, (ii) current trends in the stockholder ratification doctrines of Corwin1 and MFW,2 (iii) recent trends in appraisal litigation and (iv) a recent decision regarding forum selection clauses.

Below are high-level takeaways on each topic.

Books and Records Demands

Books and records demands are increasingly being … Read more

Debevoise & Plimpton Discusses the Rise of Secured Bonds in M&A Deals

Early 2019 has seen a wave of issuances of secured bonds to finance large acquisitions. The likelihood of slower rate increases by the Fed has led to an uptick in investor demand for secured bonds while making the pricing on such bonds more attractive for issuers. While issuers in recent years generally preferred term loans to bonds, last month, Dun & Bradstreet, TransDigm and CommScope increased the size of their secured bond tranches in response to investor demand. This update reviews some key considerations when issuing secured bonds in lieu of term loans or unsecured bonds.

Key Considerations

Call ProtectionRead more

Shearman & Sterling Reviews How CFIUS Changes Affect Technology Transactions and Investments

When it was enacted in August 2018, the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) overhauled the US law governing CFIUS national security reviews for the first time in 11 years. Many of FIRRMA’s most significant changes, however, await implementing regulations or other action by the Trump Administration before going into force, a process that likely has been stalled due to the US Government shutdown. This CFIUS update focuses on what has been done to date.

In October 2018 regulations, CFIUS took the first step in implementing some of those FIRRMA provisions that were not effective immediately on … Read more

Deal Initiation in Mergers and Acquisitions

Contrary to common belief, M&A transactions are not overwhelmingly initiated by acquirers. Target managers frequently put their firms up for sale before receiving any unsolicited bids. In fact, in our sample of U.S. domestic M&A deals completed between 1997 and 2012, target firms approached potential bidders more than one third of the time. One well known example of this is the transaction involved in the landmark decision of the Delaware Supreme Court in Smith v. Van Gorkom, where the boundaries of corporate-director protections under the Business Judgement Rule were re-drawn.  Given the large proportion of target-initiated deals, we decided to … Read more

Antitakeover Provisions and Firm Value: New Evidence from the M&A Market

A vast literature studies the effects of antitakeover provisions (ATPs) on firm value. The academic consensus is that ATPs harm firm value because they partly insulate managers from the threat of takeover, and that view has become very influential. Prominent studies find that empire building through corporate acquisitions is the main channel of value destruction by entrenched managers (Masulis, Wang, and Xie, 2007; Harford, Humphery-Jenner, and Powell, 2012). Managers protected by ATPs are more likely to pursue self-interested deals that further increase their entrenchment, which harms shareholder value. A major limitation of the existing empirical studies  is their reliance on … Read more

Wachtell Lipton Discusses Post-Closing Merger Litigation — The Road Ahead

In a recent series of landmark decisions, the Delaware Supreme Court has constructed an orderly doctrinal framework designed to reduce wasteful post-closing merger litigation.  These cases recognize that the market’s judgment is usually sound and that the costs of intensive litigation regarding transactions approved by informed and self-interested stockholders generally outweigh the benefits.  A compelling corporate law question for 2019—and a practical challenge for transaction planners—is how that doctrinal framework will be implemented in the face of sustained attack by the class action plaintiffs’ bar.

In MFW, the Delaware Supreme Court held that where a controlling stockholder conditions a … Read more

Common Ownership Has Not Yet Ushered in an Era of Anticompetitive Behavior

As mutual funds have become popular with individual investors, the institutions that manage these funds have grown dramatically.  Along with the benefit of offering individual investors inexpensive portfolio diversification and engagement in corporate governance, there is mounting concern that the growth of institutional investors has an attendant cost.  The specific concern is that, as institutional investors increasingly own shares in most firms within each industry, such “common ownership” will lead the firms within these industries to compete less aggressively in product markets.  Stated simply, the fear is that large institutional investors are burgeoning monopolists and increased common ownership is ushering … Read more

Activism Pressure and the Market for Corporate Assets

The rise of shareholder activism, and its recent international expansion, have led researchers to look at many aspects of hedge fund activism. Academic papers have almost exclusively focused on the effects on firms targeted in activist campaigns. But the intense and sustained presence of hedge fund activists in many industries and markets makes it likely that activism produces effects beyond those on activism target firms. The real effects of activism on other firms, stakeholders, institutions, and markets remain largely unexplored.

Our paper attempts to make headway in this direction by exploring the impact of hedge fund activism on markets for … Read more

Wachtell Lipton Discusses Mergers and Acquisitions — 2019

As a whole, 2018 proved to be another strong year for M&A.  Total deal volume reached almost $4.2 trillion globally, higher than the $3.7 trillion volume of 2017, but still less than the record of over $5 trillion set in 2015.  Deals involving U.S. targets totaled over $1.7 trillion, compared to approximately $1.5 trillion in 2017.  The number of large deals significantly increased in 2018, with 60 deals over $10 billion announced globally (compared to 46 deals in 2017).  The technology sector saw the largest deal volume, followed by healthcare, oil and gas, and real estate.  Private equity firms also … Read more

Paul Weiss Offers M&A at a Glance for December 2018

M&A activity in December 2018 declined across most measures. While M&A activity reached 12-month lows both globally and in the U.S., the declines in the U.S. were significantly more pronounced. Deal volume by dollar value[1] decreased, by 55.2% to $65.36 billion in the U.S., and by 17.4% to $216.72 billion globally. In the U.S. the average value of announced public mergers declined to a 12-month low of $1.35 billion. Figure 4. The number of deals also decreased, by 17.3% to 430 in the U.S., and by 12.6% to 2,250 globally, hitting the lowest levels for number of deals … Read more

Hedge Fund Activism Is About More Than Making a Quick Buck

Debate continues to rage among politicians, professors, senior lawyers, and members of the media over the regulation of hedge fund activism. The primary criticism is that, in the absence of merger and acquisition activity, such activism does not create value for the target company’s shareholders in the long-term. Furthermore, even in the event of a hedge fund activist-initiated merger, studies have indicated that value-creation is limited to short-term stock price boosts and takeover premia.

With the objective of examining whether hedge fund activists are indeed “wolves,” as described by critics whose goal is to extract short-term profits, we recently wrote … Read more

Wachtell Lipton Offers Acquisition Financing Year in Review: From Break-Neck to Brakes-On

The credit bull market finally exhibited signs of fragility in the fourth quarter of 2018, putting the brakes on what had seemed poised to be another banner year for corporate borrowers.  The skies may yet clear, but for savvy borrowers the New Year is a good time to prepare for turbulence.  Looking ahead to 2019, we contemplate strategies for M&A in choppy financing markets, the practical impact of credit rating downgrades, and the risks posed by the rise of “default activism” in the debt markets.

The Financing Markets in 2018: A Sharp Transition

A Hot Start… 

Through its first three … Read more

Wachtell Lipton on the State of Play of Activism at Year-End 2018

As we noted in early 2018, the threat of activism continues to be high, and has become a global phenomenon.  The conclusion of a volatile and dynamic 2018 prompts a brief update of the state of play.

  • Activist assets under management remain at elevated levels, encouraging continued attacks on large successful companies in the U.S. and abroad.  In many cases, activists have been taking advantage of recent stock market declines to achieve attractive entry points for new positions.  These trends have been highlighted in several recent media reports, including in The Wall Street Journal and Bloomberg.
  • While the robust

Read more

How Does Private Firm Innovation Affect Anti-Takeover Provisions in Corporate Charters?

The role of anti-takeover provisions (ATPs) in the corporate charters of firms has recently become a matter of considerable debate in the academic literature. On the one hand, earlier studies have argued that ATPs entrench firm management and therefore depress firm performance by mitigating the disciplining effect of the market for corporate control on firm management (Field and Karpoff (2002)). On the other hand, more recent papers have argued that ATPs in fact improve firm performance post-IPO. Chemmanur, Paeglis, and Simonyan (2011) argue that ATPs allow higher quality top management teams to create long-run value for the firm post-IPO and … Read more

Paul Weiss Offers M&A at a Glance for November 2018

With the exception of sponsor-related transactions, M&A activity in November 2018 generally declined. Deal volume by dollar value[1] decreased, by 9.1% to $141.10 billion in the U.S., and by 21.4% to $254.76 billion globally. The number of deals also decreased, by 11.1% to 431 in the U.S. and by 12.8% to 2,272 globally, hitting the lowest levels for number of deals both in the U.S. and globally in the history of this publication.

Strategic vs. Sponsor Activity

In line with October, the sponsor M&A market performed better than strategic deals. The number of strategic deals decreased in November 2018 … Read more

Debevoise & Plimpton Discusses CFIUS Pilot Program Aimed at Technology

On November 10, the U.S. government’s pilot program regulations aimed at monitoring and controlling foreign investment in certain “critical technologies” became effective. How might the program, which follows on the recent statutory expansion of CFIUS review, affect tech companies’ ability to raise investment capital from foreigners?

Companies in the technology sector—including telecommunications, software, manufacturing and biotechnology—are likely familiar with potential CFIUS review of transactions where foreign persons’ acquisition of control of U.S. businesses raises national security concerns. Notably, the concept of “control” goes well beyond having a majority voting interest and includes governance rights and significant economic stakes that would … Read more

Paul Weiss Offers M&A at a Glance for October 2018

M&A activity in October 2018 remained mixed, but included more positive indicators compared to September and the general declining trend line so far this year. Deal volume by dollar value[1] significantly increased overall, by 98.2% to $154.56 billion in the U.S., and by 35.5% to $328.77 billion globally. The number of deals, however, decreased slightly overall, by 2.6% to 371 in the U.S. (among the lowest levels since the beginning of this publication in 2012) and by 4.5% to 2,248 globally.

Strategic vs. Sponsor Activity

Reversing a more typical trend over the last year, strategic deals showed less strength … Read more