Fenwick & West Discusses Mitigating Class Action Litigation Risk for SPAC Transactions

Special purpose acquisition companies (SPACs) are increasingly being used as an alternate vehicle to traditional initial public offerings. Companies that go public through a traditional IPO process are often subject to shareholder securities class actions. Inevitably, securities class actions will be filed against companies that become publicly traded and file public reports with the U.S. Securities and Exchange Commission as a result of a merger with a SPAC.

One often-referenced advantage of the SPAC process as compared to a traditional IPO is the ability to directly communicate financial projections to the market. Such projections may become a greater area of … Read more

Morrison & Foerster Discusses the Private Side of Going Private Transactions

In this article, we follow up on our overview of going private transactions (available here) by focusing on an important but often overlooked workstream in these deals. Companies are frequently privatized by a group of significant shareholders, outside investors and sometimes members of senior management, and in these “club” or “consortium” deals, the buyer group members must negotiate their rights in the privatized target company against the backdrop of the complicated take-private process. Below, we address key considerations for these negotiations, including the interplay of this process with the going private process and documentation.

A Private Company Investment

Members … Read more

Gibson Dunn Discusses Stock-for-Stock Mergers During the Coronavirus Crisis

The widespread economic uncertainty caused by COVID-19 poses distinct challenges for buyers and sellers seeking to identify M&A opportunities, as companies evaluate the impact of the pandemic on their businesses to date, and seek to predict its future impact. Continued volatility in the financial markets and the lack of visibility into how the pandemic will affect the global economy in the near or longer term, as well as the pace and scope of economic recovery, introduce elements of conjecture into the valuation process. Securing financing for a transaction is also likely to be difficult, as traditional credit providers may be … Read more

Paul Hastings Discusses Internal Document Review in M&A and the Amazon/Deliveroo Case

In recent years, there has been a proliferation of merger control rules throughout the world as well as policy changes in the field. As shown by Amazon’s experience in its recent 16% minority shareholding acquisition of the online restaurant delivery operator Deliveroo, this has led to new risks and challenges for merging companies, as well as significant timing issues (in big, worldwide transactions, it can now take as long as 18 months or more to get through all of the regulatory minefields). At least 130 jurisdictions in the world (of about 200) have rules which concern, directly or indirectly, merger … Read more

Davis Polk Discusses FTC’s Proposed Rules for Hart-Scott-Rodino Filings

On September 21, 2020, the Federal Trade Commission published a Notice of Proposed Rulemaking (“NPRM”) pertaining to pre-merger notification rules under the Hart-Scott-Rodino Act that was supported by the Department of Justice.  The FTC proposes changing the definition of “person” under the HSR rules to include “associates,” and adding a new “de minimis” exemption to cover investments up to 10% where the acquiring person does not already have a “competitively significant relationship” with the issuer, such as being a competitor, officer or director, or vendor of the acquired person.  The FTC additionally published a blog post on September 23 modifying … Read more

Paul Weiss Discusses the Effect Of DOJ’s New Merger Remedy Guidance on Private Equity Purchasers

On September 3, the Antitrust Division of the U.S. Department of Justice (DOJ) announced that it is publishing a Merger Remedies Manual. Significantly, the new manual recognizes that “in some cases a private equity purchaser may be [a] preferred” purchaser of divestiture assets. At the very least, according to the manual, the “Division will use the same criteria to evaluate both strategic purchasers and purchasers that are funded by private equity or other investment firms.”

To be sure, the Division will still evaluate proposed acquisitions of divestiture assets by private equity firms to ensure that the acquisition preserves competition. … Read more

M&A Breakups: The Trends and Reasons Behind Corporate Divorces

Though mergers and acquisitions bring companies together in expensive and thoroughly documented transactions, many end eventually in ruptured unions. In a recent study of 1,365 mergers and acquisitions by S&P 500 firms between 1983 and 2010, we found that 46 percent of corporate unions resulted in divorces, with up to 77 percent of the breakups representing failures of the parties to build lasting relationships. But what accounts for the unsuccessful bonds?

We answer this question and discover statistical trends by constructing a new and comprehensive data set of corporate divorces. To identify solid evidence about traceable mergers and acquisitions, we … Read more

Davis Polk Discusses DOJ’s Updated Merger Remedies Manual

On September 3, 2020, the U.S. Department of Justice released its updated Merger Remedies Manual (the “Manual”).  The Manual emphasizes the DOJ’s strong preference for “structural” remedies (i.e., divestitures) over “behavioral” or “conduct” remedies to address potential competitive harms that result from either horizontal or vertical mergers.  In addition, the Manual stresses the DOJ’s commitment to strict implementation of and compliance with agreed-upon remedies.  This follows last month’s announcement by the DOJ regarding the establishment of the Office of Decree Enforcement and Compliance.

In 2018, Assistant Attorney General Makan Delrahim signaled the DOJ’s preference for structural remedies when he announced … Read more

The Cost of Uncertainty About Material Adverse Changes

Material adverse change/effect (“MAC”) clauses have evolved into important risk-allocation mechanisms that are commonly included in high-profile mergers and acquisitions (“M&A”) and financing deals. They typically allow lenders or buyers to either terminate an agreement without cost or penalty or renegotiate the agreement from a position of strength. When the prospects for business are dark, desperate lenders and buyers seek to rely on the ex-post triggering function of MAC clauses to avert disaster.

The uncertainty caused by COVID-19, exacerbated in the UK by Brexit, has forced many market participants to re-examine their deals. While some have managed to adjust, others … Read more

Pre-Public M&A Negotiations: How Does Bidding Competition Affect Deal Outcomes?

Ample research has focused on bidding behavior and competition dynamics in mergers and acquisitions and how they affect takeover premiums, deal completion rates, and other economic outcomes (e.g., Aktas, de Bodt, and Roll (2010), Boone and Mulherin (2007, 2008), Jennings and Mazzeo (1993), Eckbo (1983), and Ruback (1983)). The analysis of changes in firm valuations around deal announcements is especially important to determining whether the market considers a deal as value-creating or value-destroying.

In a recent paper, I shed light on the private takeover process, the period between the time a deal is initiated and the date it is publicly … Read more

Skadden Discusses FTC and DOJ Enforcement of M&A Divestiture Orders

Recent enforcement actions by the Federal Trade Commission (FTC or Commission) and the Department of Justice (DOJ) demonstrate the agencies’ continued close scrutiny of merging parties’ compliance with divestiture orders. Last month, the FTC required Alimentation Couche-Tard Inc. (ACT), a gas station and convenience store operator, to pay a $3.5 million fine to settle allegations that it violated an order requiring the divestiture of certain stores to secure approval of its acquisition of Holiday Stationstores, Inc. (Holiday). This month, the DOJ announced a settlement with CenturyLink for violations of a 2018 merger consent decree, whereby the DOJ required CenturyLink to … Read more

The Impact of the JOBS Act on M&A

The Jumpstart Our Business Startups (JOBS) Act, enacted in April 2012, was designed to make it cheaper for emerging growth companies (EGCs) to access capital and, by weakening disclosure requirements, easier for them to conduct initial public offerings (IPOs). Its impact on EGCs has been a focus of academic literature in accounting and finance, with Chaplinsky et al. (2017) showing that the act increases indirect costs for some EGC IPOs because of increased information asymmetry between the firm and potential shareholders. The upshot is that small private firms may prefer to be directly acquired rather than engage in an IPO.… Read more

Morrison & Foerster Discusses Buying Shares of Private Companies from Existing Shareholders

Investments in private companies by way of share purchases from existing shareholders (secondary transactions) raise a unique set of complexities, which are often overlooked. Share issuances in company-led financing rounds (primary issuances) grab most of the headlines. However, secondary transactions present important opportunities for purchasers and paths to exit for existing shareholders, and they often mark a milestone for the company itself. At the same time, a purchaser can feel that it must walk a tightrope to diligence and structure and complete a secondary transaction – although, upon closer review, there is often significant room for negotiation and … Read more

Gender and Executive Job Mobility: Evidence from Mergers and Acquisitions

While the obstacles women face in moving up the organizational hierarchy (captured in the popular metaphor of the “glass ceiling”) have been well studied, much less attention has been paid to understanding the circumstances women face after they reach senior managerial positions. This omission is notable because senior managers are in a different category from other employees: They tend to have substantial work histories and social and industry networks that could largely shield them from gender bias. Yet, it may be precisely in the context of leadership and authority that gender bias might be most evident.

We examine gender differences … Read more

Fir Tree v. Jarden and M&A Appraisal

The Delaware Supreme Court’s recent decision in Fir Tree v. Jarden[1] marks an important milestone in the law of appraisal, making clear that unaffected market price can and should be decisive in some appraisal actions. Because the court’s opinion relied on the proposed methodology we advocated in our recent article, Asking the Right Question: The Statutory Right of Appraisal and Efficient Markets, published in the 2019 edition of the Business Lawyer, [2] we here offer some observations about the Jarden opinion and the future of the law of M&A appraisal.

Jarden involved the not-so-uncommon situation where an acquirer … Read more

Skadden Discusses FTC and DOJ Vertical Merger Guidelines

Following their January publication of Draft Vertical Merger Guidelines (draft guidelines) for public comment, the Federal Trade Commission (FTC) and the Department of Justice (DOJ) (collectively, the agencies) issued final Vertical Merger Guidelines (Guidelines) on June 30, 2020.1 This marks the first official guidance update on vertical mergers from either of the agencies since the Non-Horizontal Merger Guidelines were published by the DOJ in 1984 (1984 guidelines),2 and the first time that the agencies have jointly issued vertical merger guidance, albeit over the continued objection of two FTC commissioners.

The new guidance aims to provide merging parties and their counsel … Read more

Arnold & Porter Discusses Covid-19 and Antitrust, Bankruptcy, and Distressed Sales

The COVID-19 pandemic has created significant financial distress for many businesses and there have been a number of bankruptcy filings recently,[1] with more likely on the horizon. As a result, there is likely to be an increase in acquisitions of companies or assets out of bankruptcy.[2] Companies considering bankruptcy sale-transactions need to consider the structure that best suits their needs—e.g., a “363 sale”  offering a separate sale process and potentially speed, or a sale as part of the plan of reorganization or liquidation plan, which allows for the sale to be incorporated into the plan process. It also … Read more

Davis Polk Discusses Revised DOJ and FTC Vertical Merger Guidelines

On June 30, 2020, the U.S. Department of Justice and Federal Trade Commission released a final version of the agencies’ updated Vertical Merger Guidelines. The updated Guidelines are broadly consistent with the draft Guidelines the DOJ and FTC released in January of this year, but contain meaningful changes that express certain concerns with vertical mergers with greater specificity, and eliminate the proposed “safe-harbor” contained in the draft Guidelines. Accordingly, while the Guidelines may still disappoint advocates for yet more intense vertical merger enforcement, the Guidelines nonetheless represent a potential step toward more vigorous vertical merger enforcement in the U.S.

The … Read more

Do CFOs Matter? International Evidence from the M&A Process

The stereotypical image of the chief financial officer (CFO) as a mere bean-counter who only settles the books and tracks regulatory compliance no longer applies. Today, the CFO’s role has evolved from back-office treasurer to strategic business partner of the chief executive officer (CEO) and valued adviser to the board of directors on the firm’s critical issues – especially mergers and acquisitions (M&A).

In the last two decades, more than 790,000 M&A deals have been announced worldwide, with a total value of over $57 trillion.[1] Traditionally, CEOs are considered most responsible for the development of M&A strategy. In most … Read more

The Vanishing IPO Puzzle

The number of private firms going public in the U.S. has declined significantly since 2000. A related phenomenon is that most private firms that “exit” (change ownership structures to allow early equity investors such as entrepreneurs and venture capitalists to cash out) choose to be acquired by another firm. In a new paper, we aim to provide insights into the above trends by empirically analyzing two related research questions using a comprehensive dataset on private firms from the U.S. Census Bureau. First, what explains the tremendous decline in IPOs in the U.S. since 2000? Second, what drives the dramatic shift … Read more