The international M&A market is closely linked to the global economy and as many of the top lawyers and law firms regularly support clients on large-scale cross-border deals, the vitality of economies in other jurisdictions is a critical factor of their workflow. Despite political and economic uncertainties in some of the world’s biggest markets, including the USA, UK and Europe and China, the M&A market remains healthy and there is significant activity in a wide variety of jurisdictions for major corporate transactions. In addition, the size of the deals closing is increasing. EY’s analysis of the US market in 2018 showed an 8 per cent increase in volume over 2017, and a 55 per cent increase in the dollar value of deals over 2017. At the time of writing, nearly halfway through 2019, these trends seem to be continuing, with practitioners around the world telling WWL researchers that M&A work continues to be strong in a variety of sectors. Indeed, one source affirmed that “there is a lot of work around, especially when you think back to 2008”.
Some of the major concerns for corporates and counsel in 2018 are increasing geopolitical tensions and global economic uncertainty. However, the M&A market has mostly shrugged off these concerns, defying concerns around Brexit and the US trade conflict with China to post strong numbers. Nevertheless, there remain concerns for lawyers tied to corporate behaviour and political issues – chief among these being regulatory restrictions to deals. Regulatory uncertainty, whether caused by antitrust or national security concerns, are a serious impediment to carrying out large-scale cross-border investment. For the first time in 2019, WWL conducted in-depth research concerning the legal market around foreign investment review, and interviewees in numerous jurisdictions noted an increasing sense of regulatory restrictions playing into their work. One practitioner in Russia commented: “We are seeing that the regulations are becoming more comprehensive, with more pressure by government to harden the process,” while another in the UK stated that there is “serious focus on the ability of regulators to intervene in deals”.
Considering such national security issues, an element of the strained Sino-American relations has been discussions around the approach of the Committee on Foreign Investment in the United States (CFIUS) and their appraisal of Chinese investment in the US. While the CFIUS are not indiscriminately blocking deals, there is nevertheless increased scrutiny on proceedings that is making investors wary of embarking on major projects. Outside of Chinese deals, one major event of 2018 was President Trump’s move to unilaterally block Broadcom from an attempt to acquire Qualcomm, citing concerns around political uncertainty and executive oversight to national security matters.
Antitrust regulations are another issue to contend with for M&A lawyers that, while nothing new, are reflecting an increasing desire by regulators to clamp down on market consolidation. Recent examples include the blocked Sainsbury’s and Asda merger in the UK, as well as the EU’s decision to block the London Stock Exchange merger with Deutsche Börse, a decision influenced by Brexit. In the US, the controversial AT&T merger with TimeWarner went ahead, but only after efforts by the Department of Justice to prevent the merger on competition grounds. While only a small sample size, these cases point to an increased awareness of regulators to market-defining M&A, as well as to the trend of industry consolidation, an important and continuing phenomenon highlighted by sources and addressed by a variety of commentators in the M&A market this year.
Another topic frequently raised by practitioners we spoke to is that of shareholder activism, which continues to have a major impact on M&A and corporate governance matters in the space. Mirroring an active M&A market, shareholders are increasingly in the spotlight due to intensifying activist proceedings. However, commentators have highlighted a concentration among major activists and repeated targeting of companies as indicative of a future decrease in campaigns. A counter to this is rooted in concerns around the future health of the global economy. While M&A activity continues to be strong, geopolitical and economic issues have led to fears of the potential for a recession, where hostile takeovers and activist activity tend to increase. At present, shareholder activism continues to be an important source of M&A activity, particularly as it gains traction outside of the US, most notably in Asian and European jurisdictions. As one practitioner in Belgium affirmed, “There are more activists, so we are working a lot with companies on defence and attacks side.”
In addition to shareholders forcing activity in the market, they are increasingly looking to push agendas that are not just linked to profits but also rooted in increasingly social issues, with sources noting an increase in campaigns relating to environmental, social and governance (ESG). In sum, activism continues to peg key corporate governance skills as a must-have for practitioners in this dynamic space.
Competition remains fierce in the M&A market, particularly as activity outperformed expectations and battled global headwinds to continue strongly into 2019. As ever, pressure on fees and costs are forcing firms to be creative and transparent with pricing when working on deals, although the high-stakes nature of certain proceedings, particularly hostile takeover bids and key corporate governance issues, perhaps make clients willing to be more lenient in such bet-the-company cases. Sources highlighted this to us, noting that “the largest firms have increased their billing rate to extreme levels but that hasn’t impacted the demand for their services”.
Another trend noticed by sources has been an increased focus by the client on the lawyer they interact with rather than the firm as whole. An interviewee in Turkey stated, “In the past, clients cared much more about the brand and the reputation of the firm – now they care more about the individuals they directly deal with.” Practitioners in Russia echoed this, noting that “clients pay more attention to the level of experience that a specific team has, rather than the name of the firm”. As a result, interpersonal skills and team make-up remain highly important when it comes to choosing firms, due to this increasingly hands-on approach of clients and in-house teams.
In the face of global uncertainty, the M&A market continues to perform well while proving to be a dynamic area, with activism, regulatory changes and client interaction all influencing practitioners’ approaches to carrying out high-level transactions and governance. As market consolidation persists and healthy capital markets facilitate deal-making, it seems that M&A activity will remain strong. The flipside of this is a degree of volatility in markets, spurred on by political tensions. While the balance continues to tip in favour of strong corporate activity, there are concerns for future state of the sector.