As one of the leading international law firms for mergers and acquisitions
, we are proud to be recognized by M&A Advisor
. Morrison & Foerster was named Law Firm of the Year for the second consecutive year, and our global M&A practice Co-Chair Rob Townsend
was named M&A Dealmaker of the Year at the 10th Annual M&A Advisor Awards. We asked Rob his views on key developments in M&A.
You have counseled on some of the most notable transactions in the past year, including the recent sale of Novellus Systems to Lam Research. What trends are you seeing in the global M&A market?
2011 Dealmaker of the Year,
Rob Townsend, discusses key developments in M&A
Overall we’ve seen a fairly flat market in 2011 compared with 2010. Morrison & Foerster was involved in 130 transactions with a deal value of over $86 billion last year. According to a McKinsey & Company survey, global deal activity in 2011 slowed in August due to volatile equity markets, but measures of value creation continued to improve. The survey reports that there were 7,700 deals valued at $2.7 trillion—only a three percent increase from 2010. U.S. technology M&A volume and value seems comparable; still not a return to 2007 levels, as is the case across the globe. Bloomberg
reports that last year’s total global deal value was 44 percent below the value of deals announced in 2007, before the economic downturn. In Asia, both 2011 value and volume exceeded 2010 levels.
Earnings and cash balances are still strong, with significant portions of this cash held overseas. Boards and CEOs are focused on generating growth through acquisitions, but also are spinning off non-core business units. We saw valuation gaps narrow in the first half of the year, but challenges return in the second half with market volatility and concerns in Europe. There has also been a rise in shareholder activism, which we expect to continue into 2012.
In the first half of 2012, we expect to see U.S. M&A activity remain steady, as the economy enters a period of sustained, but fragile, growth. If the sovereign debt crisis is addressed in Europe and earnings remain solid, we expect an improvement in the second half of 2012. Boards and CEOs will continue to have the “hunt for growth” as a top priority. If the lending environment eases and access to capital becomes more readily available, the dealmakers that have been in a cautionary stance may unleash a wave of pent-up demand that will result in an uptick in deal activity in 2012. Buyers will need to have M&A processes and strategies in place to capitalize on fast-moving deals. Morrison & Foerster provides counsel on many public company transactions. What are the major developments for public companies specifically?
The public company M&A markets continue to be driven by several key factors—the search for growth and access to new markets, consolidation in mature industries, acquisitions to enhance strategic competitiveness in industries where there is convergence, such as mobile and cloud computing, and finally divestitures and spinoffs by companies seeking to rationalize their assets and sharpen their focus.
Because of the large and increasing amount of cash on corporate balance sheets, we see cash being used most often, but where you see consolidation of similar sized entities stock-for-stock mergers are a viable option. Strategic buyers also have an advantage over private equity buyers at the moment, due to the challenging credit markets, but if things settle down in Europe and we avoid a major credit contraction, we should expect private equity buyers to be back in force in the second half of the year. As M&A counsel to many private companies being acquired, as well as to many acquirers of private companies, what recent developments in private company M&A are of interest?
Structuring and completing private company transactions has continued to be challenging where post-recession valuations have been insufficient to fully pay the preferences for all outstanding series of preferred stock. Earnouts have proliferated and grown in complexity, particularly in life sciences transactions, and practitioners have continued to use post-closing working capital adjustments and other pricing provisions to close valuation gaps and give comfort to acquirers. In certain cases, target companies have used dual-tracking (IPO and M&A) to enhance the likelihood of a successful exit and increase competition among buyers. Large technology company buyers have increasingly used private company M&A as a core component of their growth strategies, rather than just as a means to fill in the gaps in their product and service portfolios. Where appropriate, companies have used alternative entity structures, such as a limited liability company, where there is flexibility not possible with a corporate structure, and where if appropriate, fiduciary duties can be tailored or attenuated.
The jurisprudence governing private company M&A has continued to be refined, particularly in Delaware which has continued to be the jurisdiction of choice for most emerging growth companies. Differences between Delaware jurisprudence and cases from other jurisdictions have continued to highlight the importance of the choice of jurisdiction in organizing a new entity. Recent cases have focused practitioners on what is required to create enforceable post-closing remedies for acquirers, including ensuring that liability that extends beyond the traditional indemnity escrow is enforceable against the former stockholders of the target company. Courts have also further clarified that the fiduciary principles that govern public company M&A apply equally in the private company context. Certain cases, including a Delaware decision that suggests that in some circumstances a reverse-triangular merger may constitute an assignment requiring third-party consent, have raised as many questions as they have answered. With regard to cross-border deals, what developments have you been seeing and what challenges do you think will likely continue this year?
As mentioned earlier, Boards and CEOs are focused on generating growth, and U.S. companies are increasingly looking outside the United States for growing markets, efficient manufacturing, and new technologies. Likewise, we are seeing companies outside the United States looking to the U.S. for access to sophisticated markets, to acquire trusted brands and gain access to technology.
As this cross-border activity increases, we also see the level of scrutiny rising. An increasing number of countries are requiring antitrust clearances. For example, Chinese antitrust clearance is now required routinely on deals, which has been impacting the timing of the deal, the structure and deal certainty. We expect the U.S. Department of Justice and the Securities and Exchange Commission to aggressively enforce the Foreign Corrupt Practices Act (FCPA) and to see other nations continue to get active in this area. National security and other regulatory reviews of cross-border transactions continue, with the Committee on Foreign Investment in the United States (CFIUS) reviews continuing and other countries using similar processes. With regard to M&A, what are the key differentiators Morrison & Foerster offers its clients?
Clients recognize Morrison & Foerster’s M&A expertise in handling the most significant global transactions in the market and we are proud to be recognized by The M&A Advisor
as the 2011 Law Firm of the Year for the second straight year. I am also proud to be recognized as the 2011 Dealmaker of the Year by The M&A Advisor
. Our clients appreciate what MoFo brings to the table on their deals.
While our M&A attorneys work across a wide array of industries, we have an incredible depth of talent that we bring to technology deals that most firms cannot match. Not only does Morrison & Foerster have attorneys that are creative dealmakers and get deals done efficiently, we also have outstanding technology transactions and IP attorneys to collaborate with to address the tough issues that arise on a tech deal. In fact, in 2011, we were involved in more billion-dollar-plus tech deals than any California law firm based on a listing of counsel in the top 25 largest California-driven tech M&A deals. Our technology transaction team is so highly rated that when our competitors have conflicts, they come to us—as they did in the recent SAP/SuccessFactors transaction in which we advised SuccessFactors on IP issues. Our IP work on tech M&A deals is in no small way part of the reason that we were listed as the “Law Firm of the Year” in U.S. for Technology by U.S. News - Best Lawyers 2011-2012
Another key differentiator is our deep knowledge of the financial services industry and regulatory environment. We have sophisticated bank and financial services regulatory capabilities and an in-depth understanding of the financial markets, as well as industry-specific litigation expertise. Our bank and financial services practice is one of the most active in the United States.
Morrison & Foerster also has a long history of successfully completing cross-border transactions. We have been one of the leading U.S. law firms in Asia for over 25 years—with over 200 lawyers resident in our offices in Beijing, Hong Kong, Shanghai, and Tokyo. Our portfolio of experience and international platform reflects our focus on cross-border deals. With offices in the United States, the UK, Belgium, China, and Japan, we have the ability to seamlessly staff M&A transactions in some of the most active markets in the world.
Our clients turn to us for our creativity and focus on getting deals done for clients by solving the toughest issues and never letting our egos get in the way. Our firm culture results in a collaborative and fully integrated approach across our practice groups and geographies ensuring that we bring the best talent to bear for our clients on any given matter or issue.
Morrison & Foerster offers a complimentary executive briefing to clients on the meaningful developments of M&A. If interested, please contact Jane Amon at