February 12, 2018
M&A Trends: The Good, The Bad & The Ugly
This Morrison & Foerster memo highlights some key M&A trends for 2018. These include continued high levels of “big ticket” M&A and private equity deals, new opportunities resulting from tax reform, and growth in the UK M&A market.
It’s not expected to be all good news for deals in the upcoming year. On the bad news front, CFIUS issues are expected to continue to cause problems for Chinese buyers – and this excerpt says the number of “dead horse” deals will likely remain high:
As the mega-merger spree continues, so has a spike in abandoned deals. A number of high-profile blockbuster transactions, including Aetna’s $37 billion tie-up with Humana and Anthem’s $54 billion deal with Cigna, were canceled in 2017, following a 2016 spike that saw 1,009 cancelled deals worth $797.2 billion and a failure rate of 7.2 percent, the highest rate since 2008.
The reasons behind the rise in failed tie-ups can vary. One major factor for deal cancellations in 2017 was the regulatory environment. U.S. national security review by CFIUS, which is explored in the next section, had an increasing impact on cross-border deal activity in 2017, particularly as it relates to Chinese investment in U.S. technology companies. CFIUS could have an even greater impact on 2018, should lawmakers pass legislation to expand CFIUS’ authority.
Antitrust regulations also continue to be in the spotlight, with deals such as Aetna/Humana falling to antitrust concerns. As 2018 opens, much attention is being given to the DOJ and the Trump Administration, as the DOJ challenges the proposed $85 billion merger between AT&T and Time Warner. Dealmakers will follow the case closely, as it is expected to have major implications for the future of mega-merger deal activity.
I promised you ugly in my title, didn’t I? Okay, if you’re a Delaware lawyer, the news doesn’t get much uglier than this:
What a difference a year makes. As of October 2017, only 9 percent of the 108 lawsuits that had been brought to challenge public-company mergers had been filed in Delaware. That represents a considerable drop from 2016, when 34 percent of the nation’s merger-objection suits were filed in Delaware, and 2015, when 60 percent of the nation’s merger-objection suits were filed in the Diamond State. The trend is clear: M&A litigation is moving away from Delaware.
The memo blames the usual suspects – Trulia & Corwin – and points out that during the first 10 months of 2017, a whopping 87% of merger lawsuits were filed in federal court.
– John Jenkins