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
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
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
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
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
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 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
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
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
The Delaware Supreme Court’s recent decision in Fir Tree v. Jarden 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,  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
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
The COVID-19 pandemic has created significant financial distress for many businesses and there have been a number of bankruptcy filings recently, 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. 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
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
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. Traditionally, CEOs are considered most responsible for the development of M&A strategy. In most … Read more
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
When companies in financial difficulty are forced to sell assets – especially real assets such as factories, business units, real estate, or the entire company – the news is often seen as negative all around. In these situations, often referred to as “fire sales,” companies are forced to sell assets below fair value (see Pulvino, 1998), and the spillover effects can be costly as well. These spillover costs, or externalities, include plant closings and job losses that hurt employees, suppliers, customers, and competitors (see Goolsbee and Krueger, 2015). Fire sales may also depress the values of … Read more
As the COVID-19 pandemic causes commercial and financial difficulties, many businesses will be considering M&A to address strategic issues, take advantage of market opportunities, and, in some cases, ensure their survival. This memorandum considers the merger control implications of the pandemic for businesses contemplating transactions at this time.
First, this memorandum provides an overview of how European agencies are responding to the pandemic. Second, it considers how the crisis may affect the substantive assessment of transactions, including the implications of changed competitive conditions, the availability of the “failing firm” defense, and agencies’ evaluation of the counterfactual. Finally, we provide some … Read more
COVID-19 had a marked impact on M&A in April, extending the decline observed in March across all measures. Globally, the number of deals decreased by 24.2%, to 2,036, and total deal value decreased by 44.3%, to $118.34 billion. U.S. M&A activity also declined, with the number of deals decreasing by 32.2%, to 473, and total deal value significantly decreasing by 69.6%, to $16.60 billion. Significantly, average deal value declined to $58.1 million globally and to $35.1 million in the U.S. (reductions of 26.5% and 55.1%, respectively). Figure 1.
In a marked departure from the norm, no U.S. public … Read more
This Client Alert provides an update on shareholder activism activity involving NYSE- and Nasdaq-listed companies with equity market capitalizations in excess of $1 billion and below $100 billion (as of the last date of trading in 2019) during the second half of 2019. Announced shareholder activist activity declined relative to the second half of 2018. The number of public activist actions (24 vs. 40), activist investors taking actions (17 vs. 29) and companies targeted by such actions (23 vs. 34) each decreased substantially. The slowdown was in contrast to the first half of 2019, during which period shareholder activism activity … Read more
The coronavirus pandemic has weakened European economies and companies. EU and national governments have expressed concern that foreign investors may opportunistically take advantage of the crisis to acquire domestic companies regarded as strategic.
Acquirers should anticipate the risk that governments may review and challenge acquisitions of companies perceived as strategic national assets. Potential for foreign investment review should be considered in advance, in terms of both current legislative measures and prospects for future political intervention, by means of, for example, committee inquiries by national legislatures, state defensive stake-building or even nationalisation of vulnerable domestic companies. These concerns can extend well … Read more