London, January 23, 2012 - M&A transactions tilted towards
the contentious and legally complex last year as acquirers
sought to protect their deals in a volatile and
increasingly hostile market, according to the latest
quarterly report from Thomson Reuters Governance, Risk &
Compliance (accelus.thomsonreuters.com).
The report; M&A Trends and Insights for Lawyers, shows that
deal activity fell in the second half of 2011 by 23.9
percent as volatile markets and depressed stock prices took
their effect on transactions.
The difficult market conditions were also reflected in the
Thomson Reuters Accelus M&A Hostility Index (an indicator
of contentiousness in the deal-making environment), which
continued to move upward in the fourth quarter of last year
for the third consecutive quarter. In addition,
transactions took longer to complete in 2011, with deals in
the telecommunications sector taking longer to complete
than in other industries, in part reflecting difficulties
getting the necessary regulatory approvals.
In response to the market uncertainty, companies
increasingly employed reverse break fees to protect
transactions. According to the report, 36 percent of
SEC-filed U.S. public M&A deals (valued over $25 million)
had reverse break fees in 2011, up from 25 percent in 2010.
Significantly, the trend toward reverse break fees was more
pronounced among private equity (PE) acquirers. 78 percent
of SEC-filed public M&A deals with a PE acquirer employed a
reverse break fee in 2011, up from 53 percent in 2010.
"Private equity firms pioneered the reverse break fee and
in this volatile environment it is no surprise they are
using it more and more to appease nervous sellers," said
Ely Razin, vice president at Thomson Reuters Governance,
Risk & Compliance. "Strategic buyers have also favoured
this approach and our analysis shows that the value of some
of these fees has ratcheted up considerably to reach a
range of between 10 and 19 percent, compared to a more
usual range between 3 and 7 percent."
Private equity was by far the brightest part of the M&A
market in 2011. In particular, PE acquirers stepped up both
their volume and value of deals compared to 2010. PE
acquirers also continued to rely on go shop provisions more
than their strategic counterparts, with the proportion of
PE deals containing go shops holding steady at 24 percent
in 2011 compared to 2010. Matching rights provisions, which
give buyers an opportunity to improve their bid in the face
of a competing offer, continued to be included in the vast
majority of public deals.
Regulatory and compliance concerns factored more than ever into deal making large and small in 2011. On the antitrust side, AT&T's failed $39 billion attempt to acquire T-Mobile stood out for the creativity of its reverse break fee, which was tied to regulatory approvals and its payment composed of a combination of cash, spectrum and roaming rights. With such factors in mind, the report cautions that deals of any size need to heed compliance risks for the year ahead; for example, with the U.S. poised to step up FCPA enforcement, global due diligence is more important than ever.
A copy of the report can be downloaded at:
http://accelus.thomsonreuters.com/content/special-report-ma-trends-q4
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