Despite ebbs and flows of global economic uncertainty, M&A activity remained robust in 2019. Total deal volume reached $4 trillion globally, a slight decrease from the $4.1 trillion volume in 2018, but higher than the $3.5 trillion in 2017. The U.S. M&A market had a particularly strong year. 15 of the 20 largest deals involved U.S. companies, with deals involving U.S. targets totaling over $1.8 trillion, second only to the record of over $2 trillion set in 2015. While deals over $10 billion fell from 60 globally in 2018 to 49 in 2019, deals over $25 billion increased from 16 … Read more
Channel Medsystems, Inc. v. Boston Scientific Corporation (Dec. 18, 2019) is the Delaware Court of Chancery’s first decision issued since the Delaware Supreme Court’s 2018 Akorn decision to evaluate whether an acquiror had a right, under a merger agreement, to terminate a pending acquisition on the grounds that there was a “Material Adverse Effect” or “Material Adverse Change” in the target company. (We use “MAE” and “MAC” interchangeably in this memorandum.) Akorn was the first case in which the Court of Chancery, post-trial, found the existence of an MAE and the first post-trial Delaware decision to find that an acquiror … Read more
2019 was another strong year for corporate borrowers, continuing a decade-long run marked by historically low interest rates and strong credit markets. Over the last 10 years, total U.S. corporate bonds outstanding rose from $6 trillion to nearly $10 trillion, while leveraged loans expanded to $1.2 trillion from $500 billion.
But even in the midst of this bull market, new opportunities and challenges arose. Two major trends from the last year stand out—the increased participation of “non-traditional lenders” as a financing source and the continued evolution of “debt default activism” as a material concern for borrowers.
The Acquisition Financing Markets
M&A activity declined across most measures in December 2019. The number of deals fell by 17.3% in the U.S., to 613, and by 7.1% globally, to 2,665. Total deal value decreased by 21.2% in the U.S., to $122.92 billion, but increased by 3.9% globally (driven primarily by sponsor-related activity), to $347.75 billion. Average deal value also decreased by 4.7% in the U.S., to $200.53 million, but increased by 11.9% globally (again driven primarily by sponsor-related activity), to $130.49 million. Figure 1. The good news, however, is that U.S. M&A activity was up overall for 2019, as we will … Read more
In a year of robust M&A activity, the U.S. antitrust agencies investigated and challenged transactions in many sectors of the economy. The Federal Trade Commission and the U.S. Department of Justice initiated court challenges to block four proposed transactions and required remedies in 17 more. Companies also abandoned five transactions due to antitrust agency opposition, including three transactions abandoned shortly after the agency filed its court challenge. In addition, a coalition of state attorneys general challenged in federal court the merger of T-Mobile and Sprint, a transaction cleared, with the imposition of conditions, by the DOJ and the Federal Communications … Read more
By last count, there are now 29 U.S. law firms with at least 1,000 lawyers. In a few weeks, this number should rise to 32, primarily as the result of mergers. My prediction is that this number will climb to well over 50 by the end of this decade. Still, two inconsistent trends are peaking at the same time: (1) large firms are growing in size, but (2) growth in the number of equity partners at these firms has stalled (and may even have declined). According to the annual survey by the National Law Journal, the number of … Read more
Corporate Focus on the “Social Good”
Importantly, the Business Roundtable (an influential group of almost 200 CEOs of America’s most influential companies) issued a “Statement on the Purpose of a Corporation,” which has intensified a developing focus on the social impact of corporate decisions. The BRT Statement contains no specific commitments or directives and does not represent a change in law, but reflects a view that there is a social responsibility component to corporate decision-making. The Statement emphasizes that directors should not be single-focused on the maximization of profits for shareholders and should weigh heavily the interests of the other … Read more
In 2017, shareholders of Tesla Motors sued Tesla’s CEO, Elon Musk, and its directors, claiming that the company, at Musk’s urging and under his influence, engaged in a conflict of interest transaction when it purchased SolarCity, a corporation owned by Musk and his family. That litigation reflected the substantial concerns that shareholders have when their corporations undertake business transactions directly with their directors, officers, or principal shareholders or with companies that management personnel own or control.
Conflict of interest transactions occur frequently in both small and large corporations. They can range from somewhat innocent transactions such as loans to corporations … Read more
M&A activity in the U.S. and worldwide continued to be mixed in November. The number of deals fell by 13.5% in the U.S., to 721, and by 7.7% globally, to 2,710. However, total deal value rose by 48.3% in the U.S., to $150.98 billion, and by 8.7% globally, to $326.37 billion. Average deal value also increased by 71.6% in the U.S., to $209.4 million, and by 17.7% globally, to $120.43 million. Figure 1.
Strategic vs. Sponsor Activity
Strategic deals outperformed sponsor deals last month, with the former showing more mixed results while the latter declined across all metrics. … Read more
The UK operates a voluntary merger control regime. In addition, the European Commission (EC) operates a ‘one-stop shop’ jurisdiction to review the largest and most complex cases on behalf of all EU Member States, including the UK. The combination of a voluntary UK regime and EC jurisdiction over major deals has resulted in the UK’s antitrust authority – the Competition and Markets Authority (CMA) – historically having a lower profile than many other major G20 enforcement authorities.
With Brexit now looming, however, the CMA is seeking to raise its global profile and to articulate … Read more
U.S. corporate law adopts a regulation-by-litigation model where the efficient balance between incentives and filters is essential for litigation to perform its function. In this model, over-litigation is not only a detrimental distortion but also a significant indication that the regulating mechanism is not efficiently working and that some corrective actions are required.
Given the dramatic increase in M&A litigation in recent years, culminating in 2014 with challenges to 95 percent of deals valued at more than $100 million, a correction was to a certain extent predictable. It came from the Delaware Court of Chancery in 2016 with In re … Read more
M&A activity in the U.S. and worldwide was mixed in October. The number of deals continued to fall with a decline of 11.2% in the U.S., to 744, and of 8.1% globally, to 2,708. At the same time, total deal value rose by 37.5% in the U.S., to $99.29 billion, and by 47.2% globally, to $282.72 billion. Average deal value also increased by 54.8% in the U.S., to $133.5 million, and by 60.2% globally, to $104.4 million. Figure 1.
Strategic vs. Sponsor Activity
The number of strategic deals decreased in the U.S. by 15.6% to 583 and globally … Read more
Common ownership – the phenomenon of firms sharing stockholders with industry competitors – is becoming ubiquitous, with 82 percent of S&P 500 firms having common ownership at the end of 2015 compared with just 17 percent in 1990.
At least in theory, a cross-owner has incentives to reduce competition among its portfolio companies because doing so may boost their earnings (likely at the cost of consumers or other companies). For example, common ownership within the finance industry has been found to reduce interest rates that savers receive on their deposits, while common ownership between airline companies tends to raise air … Read more
One of today’s most pressing antitrust questions is how antitrust should address the conduct of dominant technology companies, such as Amazon, Facebook, and Google. Once heralded as the champions of innovation and the modern economy, these companies are now the subject of growing calls for their breakup, including through actions by the federal antitrust agencies to challenge and unwind key mergers in the technology industry, including Facebook-Instagram, Amazon-Whole Foods, and Google-DoubleClick.
But nearly every one of the technology mergers identified for challenge and breakup was previously reviewed and cleared by the antitrust agencies pursuant to the existing federal merger review … Read more
M&A activity in the U.S. and worldwide declined against many indicators in September, confirming numerous recent reports that dealmaking has taken a downturn. While the number of deals rose by 13.9% in the U.S., to 803, and by 7.6% globally, to 2,806, their total value fell by 41.0% in the U.S., to $71.49 billion, and by 28.0% globally, to $187.97 billion. Average deal value also decreased by 48.2% in the U.S., to $89.0 million, and by 33.1% globally, to $67.0 million. Figure 1.
Strategic vs. Sponsor Activity
Similarly, while the number of strategic deals increased in the U.S. … Read more
The U.S. Securities and Exchange Commission (SEC) has increased the regulation of asymmetric information-based trading, aiming to mitigate disclosure of material private information to select market participants. These efforts have not been fully successful, raising questions about the impact of asymmetric information on private equity trades, informed trades, and expected gains. The integrity of competing market structures and market makers’ rent has heightened the need to understand and measure the cost components of the market maker bid-ask spread. Whether the existence of private information in takeovers through selective disclosure is harmful to financial markets is still uncertain. Inside information is … Read more
After letting the option go unused for more than 20 years, the Antitrust Division of the Department of Justice recently announced it would use arbitration to settle its challenge of the proposed merger of two aluminum producers. In a press release last month, the Division acknowledged that this is the first time its history that it has used arbitration rather than litigation as a means to resolve an antitrust challenge. The emergence of arbitration as an alternative to litigation raises questions about its proper mechanisms and its potential impact on the merger review process.
Novelis-Aleris Agreement and Rationale
On Sept. … Read more
Managerial entrenchment is detrimental to shareholder value (Faleye (2007), Cohen and Wang (2013), and Cohen and Wang (2017)). Managers are able to become entrenched by making specific investments whose value is higher under their watch than under that of the next-best alternative managers (Shleifer and Vishny (1989)). This value differential will be lost if shareholders replace managers who entered into such deals. As a result, those managers gain leeway to increase their compensation and exercise more discretion over firm strategy in a way that might destroy shareholder value.
In a recent article, we explore how managers who are not yet … Read more
A no-deal Brexit would have significant and immediate effects on UK competition law enforcement:
- Parallel investigation of mergers, cartels, and dominance cases by the UK Competition and Markets Authority (“CMA”) and European Commission (“EC”);
- Possible delay to transactions notified to the EC but not cleared by Brexit day;
- A significant increase in the CMA’s caseload, stretching its resources;
- New challenges for claimants bringing EU follow-on damages cases in the UK courts.
If the UK leaves the EU on 31 October 2019 without a withdrawal agreement, it will affect how UK and EU competition law applies to businesses with UK activities.… Read more
The U.S. antitrust agencies have struggled for decades to provide comprehensive guidance on the antitrust treatment of so-called vertical mergers—generally, mergers of two companies at different levels of the distribution chain. Recent developments suggest a new effort to articulate the legal and economic bases for the assessment of vertical mergers. While the specifics have not yet been articulated, it is anticipated that the guidance will address theories of unilateral and coordinated harm, the treatment of efficiencies, and the evaluation of whether remedies are sufficient to address competitive harms. It remains to be seen, however, whether these efforts will provide greater … Read more