The year 2014 brought many changes to the landscape of mergers & acquisitions, and general counsel must know how to capitalize on these changes, regardless of their industry. Shared here are three top trends that all corporate counsel should be prepared to face in 2015, and a little advice on how to best approach these developments.
The healing economy has brought an increase in mergers & acquisitions in 2014, and with continuing low interest rates, banks ready to help with financing, and money more plentiful than in recent years, the strong pricing in 2014 is sure to continue for 2015. Some reports have indicated M&A activity has returned to pre-recession levels. With a market rife for acquisition, more companies are growing by acquisition as opposed to organic growth.
In the absence of an M&A department or executive, the responsibility to take advantage of this trend often falls on the GC. GCs, recognizing this trend, will want to be looking for opportunities. However, notwithstanding the increase in activity, that is to say more deals, there is more money chasing deals than there are deals.
If on the buy side, the GC will want to be cautious that early exploratory expenditures are budgeted and monitored to avoid overspending on deals that may very well not get consummated. If on the sell side, the GC, along with other senior management, will want to be cautioned that the highest price bid for the company may not have the best terms or be the best fit for those in the company who will continue on after the acquisition.
An interesting trend with public companies involves the input from major shareholders such as institutional investors and hedge funds. The increase in shareholder activism has impacted acquisition activity by public companies.
When a company has excess cash, management and the Board may see opportunities to use those funds for a strategic acquisition, whereas major shareholders would prefer to dividend out the cash instead.
Often these divergent interests will spark more dialogue between C suite and shareholders. This increased dialogue, sometimes friendly often times not, has shown a trend up in the past couple of years, and will undoubtedly continue into 2015.
During these conversations, corporate counsel should be advising on issues and strategies on dealing and negotiating with shareholder activists. These strategies will focus on careful administration of shareholder relations, federal and state securities laws compliance, and general corporate reputational risk. Bottom line: Shareholders want to see an increase in the value of their stock, and management will want to provide assurance that a strategic acquisition may do more to increase value and thereby future cash available for distribution.
As your organization has conversations with other companies regarding acquisitions, there are some potential issues you must be aware of. Early conversations need to be sensitive to antitrust and price fixing issues, including most notably Section 1 of the Sherman Act. Should the deal fall through and either you or your possible acquisition target later raise prices, your organization(s) may be investigated for the possibility of having had conversations during the acquisition negotiations and due diligence to fix prices.
What do GCs need to be aware of here? It is generally recommended that GCs carefully manage early discussions. While not being able to script those discussions, they can be controlled. We like to use printed agendas for meetings delineating topics to be covered and of course leaving out topics that should not be covered early on.
We also recommend that counsel be present at early meetings to provide an early admonition to the participants as to what can be covered and what cannot, as well as to monitor the discussions and step in if anything goes astray. In addition, due diligence should be structured in a way so as not to disclose sensitive anticompetitive information, using independent third parties when necessary and helpful to verify certain data that cannot be disclosed.
Mark S. Greenfield, partner at law firm Blank Rome, focuses his practice on corporate finance. Mr. Greenfield represents clients in a broad range of industries including energy, technology, biotechnology, software, healthcare, medical devices, pharmaceutical, manufacturing, gaming, hospitality, media and entertainment, and financial services. He also regularly provides expert testimony in the areas of corporate governance and healthcare, and he has served on numerous corporate boards, including audit committee assignments.