Deal lawyers gearing up for big year for M&A activity as corporate cash piles up
"Either use it or return it to me", investors are telling corporate officers about their accumulated cash. That means more (and more complex) deals - and busy lawyers
January 15, 2018 at 05:22 AM
3 minute read
Investor pressure for companies to spend their accumulated cash could help make 2018 a boom year for M&A deals.
That's the sunny, revenue-happy forecast provided by partners at Davis Polk & Wardwell, Sullivan & Cromwell, Cleary Gottlieb Steen & Hamilton, and Hogan Lovells – all firms that landed among the top 20 in year-end M&A rankings based on the volume of global deals.
"Either use it or return it to me," investors are telling corporate officers about their cash, said Oliver Smith, a partner at Davis Polk who is advising Aetna on its pending $77bn sale to CVS Health. His firm ranked sixth on Bloomberg's 2017 league tables based on global deal volume.
Cash-rich businesses can thank a robust economy and the new tax law. Under the law, US companies may bring home money kept offshore and make a one-off tax payment at a rate less than 16%. That's compared with what would have been a 35% tax under the old rules.
"A combination of deemed repatriation of foreign profits, lower US corporate tax rates, robust credit markets, high corporate confidence and economic growth in all major global markets should lead to a steady flow of combinations across all sectors and geographies" in 2018, said Frank Aquila of Sullivan & Cromwell, which ranked 10th in the same Bloomberg global deal volume table.
Sullivan & Cromwell, which is advising AT&T in its acquisition of Time Warner and Bayer in its acquisition of Monsanto, has other deal assignments in the pipeline, he noted.
"We are already working on a number of large potential transactions and are ready to take on many more. It will be a busy and exciting year," Aquila wrote in an email.
Hogan Lovells, which was 18th in the same global deal volume rankings, also expects a steady flow of M&A work, according to Warren Gorrell, the CEO emeritus of the firm and a partner in its Washington DC and New York offices. "We are seeing more than most firms," said Gorrell, who noted that Hogan Lovells represents Celgene in its newly announced multibillion-dollar acquisition of Impact Biomedicines.
Ethan Klingsberg, a partner at Cleary Gottlieb, also has high expectations for 2018. "I think we are gearing up for a big year. We are already seeing a lot of boards that are considering deals," said Klingsberg, whose firm ranked third in the Bloomberg rankings. Klingsberg is advising Google on its proposed $1.1bn acquisition of Taiwanese smartphone maker HTC.
Investor pressure has prompted corporate board members not to be "daunted by complexity" and to consider deals that present greater obstacles, from regulatory scrutiny to integration hurdles, Klingsberg said.
Investors are telling corporate boards: "You've got to show me you are aggressively taking steps to maximise returns, even if there's execution risk associated with these steps and they may not entirely succeed," Klingsberg said.
The result? Companies are taking on more challenging deals, Klingsberg and others said. And that means even more work for their outside lawyers. "We are on a fantastic trajectory," Smith said.
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