Global M&A hits 7-year high
Reuters has recently reported that the value of all mergers and acquisitions worldwide in 2014 was at the highest annual value since 2007, owing to large deals that closed in several key industries, including telecommunications, healthcare and consumer goods and services. As at December 11, the deal volume was $3.27 trillion USD, up more than 40% from last year. Reuters notes that the deals were led largely by “cautious company boards, using shares rather than debt to fund purchases.”
M&A in Canada
The Financial Post reported that Canadian businesses were involved in combined M&A transactions worth $229 billion USD, up 45% from last year. Goldman Sachs and JPMorgan Chase each advised on roughly one-third of those deals, with Royal Bank of Canada behind them in third place. The CEO of Goldman Sachs Canada pointed out that a “significant portion of Canadian M&A this year has been cross-border driven”—roughly 77%—which may have led to the increased presence of US investment banks; Royal Bank of Canada had been the top adviser for the previous 3 years. In addition, the value of deals involving Canadian targets was smaller than the value of outbound deals, as Canadian firms increasingly looked outside for expansion and growth.
Writing for the Dealpolitik blog of the Wall Street Journal, Ronald Barusch prepared a list of four lessons learned based on the flurry of M&A activity in 2014:
- Shareholder activism has been, and continues to be, on the rise, with a new trend of inviting activists onto the board of directors before a public contest begins. This is a marked departure from tactics in recent years, which often involved all-out defenses or simply ignoring activists. In some situations, a board might be confident that an activist proposal can be implemented without inviting “noisy new directors.”
- The first hostile bidder might not always be the one to see a deal, for which there are several examples from the previous year. Barusch notes that negotiating a deal with a target has better odds of completion than a hostile takeover bid.
- Getting the basic elements of any M&A deal right is essential, as parties who make errors are not treated with leniency. In one Delaware case, the parties in an acquisition transaction failed to mitigate conflicts of interest and had poor internal procedures, which led the court to determine that the sale was flawed. In another Delaware decision, the court found that the parties had made significant errors, and although the deal was permitted to close, litigation is ongoing.
- Parties involved in M&A transactions need to act quickly, as both the market and regulatory environment can change and eliminate opportunities. For example, waiting too long in any M&A transaction may cause the share price of a target to appreciate, making the purchase no longer feasible for the acquiror. In addition, tax inversions have become heavily regulated in the United States after a September 22 announcement by the Treasury Department. Companies that restructured prior to that date can still reap the benefits in future acquisitions, while those who did not will have to abide by new stringent requirements.
The author would like to thank Reuben Zaramian, articling student, for his asisstance in preparing this legal update.