M&A in 2015: Shattering prior records. With the economy in a modest recovery and with cheap financing readily available, M&A activity was at an all-time high in 2015. Surpassing the prior record of $4.3 trillion in deals in 2007, 2015 saw M&A activity of $4.7 trillion worth of transactions, of which approximately half involved U.S. companies. In fact, U.S. deals alone exceeded $2 trillion for the first time ever.
Deals were also bigger. According to Dealogic, more than 60 transactions were valued at $10 billion or more. That is over 150 percent more than the prior record of 43 mergers exceeding that same price tag in 2006. In addition, in 2015 at least nine transactions were valued at more than $50 billion each.
The retail sector did more than its part to contribute to the M&A upswing. Convenience stores, pharmacies and consumer products saw a large volume of deal activity. Retailers also sought to ensure their omnichannel presence and reach millennial consumers through online acquisitions.
Our 2016 outlook is optimistic, although there are headwinds created by global economies and potential volatility in credit markets. We expect 2016 to be another solid year for U.S. M&A activity. With many mega mergers having closed or being well on their way, many smaller companies will find themselves feeling forced to acquire — or be acquired — in order to remain competitive. Larger companies will remain acquisitive in order to maintain scale and acquire new technologies and new lines of business, and may be active in selling, or spinning off, non-core businesses. Consequently, the M&A wave is expected to continue well into 2016 and perhaps beyond.
Important lessons from the Delaware Court of Chancery. In two separate areas, the Delaware courts issued rulings that set in motion lasting changes to the way companies approach and complete M&A transactions.
First, the Delaware Supreme Court affirmed the Court of Chancery’s decision to hold a financial adviser liable for more than $75 million in damages for aiding and abetting breaches of fiduciary duty by a company’s directors. The financial advisor was found to have had numerous conflicts of interest during an M&A sale process, which were material information not adequately disclosed to the board. The court found that the board’s lack of oversight of the financial adviser resulted in the adviser’s conducting a “flawed and conflict ridden” sale of the business. This ruling sent a clear message to corporate boards to exercise careful oversight of advisers in transactions.
Second, the Court of Chancery criticized numerous “disclosure only” settlements in several merger challenges, including Cobham PLC/Aeroflex, Roche/InterMune, Thoma Bravo/Riverbed Technology and Hewlett-Packard/Aruba Networks. Prior to these rulings, most public M&A transactions could expect at least one “strike suit.” These settlements generally provided defendants with a broad release of claims in exchange for providing supplemental disclosures about the merger and agreeing to pay the plaintiffs’ attorneys’ fees. The court’s rejection of disclosure-only settlements may add to deal parties’ uncertainty as defendants frequently enter into disclosure-only settlements to avoid the nuisance costs associated with handling these lawsuits post-closing. But they also signal increased judicial scrutiny over the proliferation of lawsuits challenging M&A transactions, and we have begun to experience a reduction in the volume of merger strike suits.