Global giant Skadden Arps on life as a corporate lawyer
Attorneys in our M&A practice advise clients on mergers, acquisitions, divestitures, spin-offs, proxy contests and joint ventures, as well as on strategic alternatives. Additionally, we advise clients on corporate governance, securities law and general corporate matters.
The practice represents a diverse array of US and international, public and private clients, including multinational corporations, emerging companies, private equity and hedge funds, individual investors, sovereign governments and other stakeholders. Clients often are undergoing fundamental changes in their strategy and business, and our M&A attorneys help them navigate this period of profound change.
Business Climate
While global M&A volume in 2016 declined from the record levels set in 2015, activity remained strong by historical standards. Global dollar value of deals was approximately $3.7 trillion, an annual total behind only 2015 and 2007. Dollar value of US transactions was approximately $1.7 trillion.
Market Drivers
Despite political and economic developments that caught many observers by surprise, M&A volume in 2016 was again dominated by two strategic forces: the need to grow revenues and earnings in a low-growth environment, and the need to be competitively positioned in the global marketplace. M&A has provided corporations a means to grow revenues faster than would be possible organically, and synergies resulting from transactions have yielded expanded margins and rapid earnings growth. Deal activity also allowed strategic players to enhance geographic or portfolio footprints and transformed some into industry disruptors through the acquisition of new technologies.
One noteworthy development was an increase in inbound US M&A activity to record levels. In 2016, inbound deal volume surpassed $500 billion, with significant activity coming from Canada, China and the UK. While there are numerous potential headwinds that may temper this this increased activity — robust asset prices, a strong dollar, the potential impact of changes in Chinese policies limiting foreign investment and concerns regarding the potential for growing economic nationalism — significant cross-border deal flows into the US appear likely to continue.
'Corporations face a continued imperative to grow at a rate that exceeds economic growth – and M&A is an important tool to achieve that goal.’
Hostile and Unsolicited Activity
Hostile and unsolicited M&A activity has continued to play a small but important role in the M&A market. In 2016, unsolicited transactions accounted for nearly $400 billion in global deal value. However, as in prior years, success by hostile offerors was far from universal. In 2016, several target companies successfully defended against unsolicited proposals without an alternative transaction being present. One notable example was the withdrawal by Canadian Pacific Railroad of its unsolicited offer for Norfolk Southern Company after Norfolk Southern determined that the value generated under its own strategic plan was higher than Canadian Pacific's proposal and that the proposed transaction was highly unlikely to receive regulatory approval.
Abandoned Transactions
2016 saw a number of large proposed transactions withdrawn after announcement, with more than $800 billion in deals withdrawn throughout the year, almost one-fifth of total transactions value announced over that period of time. Transactions were abandoned for a wide range of reasons and at various stages. Certain announced unsolicited offers never took flight due to the target’s unwillingness to engage, while other signed deals ultimately were terminated as a result of shareholder dissatisfaction with the proposed terms, emergence of a topping bid or regulatory issues.
Several large pharmaceutical transactions were terminated following changes to tax regulations seeking to halt so-called “inversion” transactions, in which a US company would be acquired by a smaller foreign company effectively moving the home tax jurisdiction of the publicly traded parent out of the US. Several large transactions were abandoned in 2016 in the face of aggressive antitrust enforcement at the Department of Justice and the Federal Trade Commission, reflecting increased government willingness to litigate in order to enjoin, rather than accept proposed settlements in, transactions raising substantive antitrust issues.
Potential Impact of the Change in Administration on US M&A Activity
Equity markets to date have reacted favorably to the outcome of the presidential election and the expected changes to fiscal and regulatory policies. But speculation on the impact of the Trump administration on M&A activity remains precisely that — speculation. However, likely policy changes could result in a meaningful, and generally favorable, impact on the M&A environment, such as adopting a more business-friendly approach to regulation, increasing the competitiveness of the US corporate tax regime and adopting incentives to repatriate offshore cash. The impact of possible changes to fiscal policy, trade policy and national security review are more difficult to predict and could lead to positive or negative impacts on the deal environment.
'We’re going back to a world where synergies and strategic imperatives are driving deals...'
Life as an M&A Associate
The M&A lawyer’s role is truly unique within the range of corporate law disciplines. Each deal requires the M&A team to work closely with lawyers in other groups, such as corporate finance, banking, executive compensation and benefits, intellectual property, labor, real estate, tax, antitrust and litigation, as well as a host of others with regulatory subject-matter expertise. It’s a bit of a hub-and-spoke model and feedback from other groups typically flows through the M&A team. Consequently, an M&A associate's knowledge of corporate law will grow broadly and exponentially. From the career development standpoint, gaining exposure to and an understanding of these varied areas of law is a major benefit of being an M&A associate. In comparison to the steadied pace of learning in law school, practicing M&A may feel a bit like drinking from the fire hose.
M&A assignments are rarely static and never straightforward. An overload of information, novel and complicated issues, and shifting objectives are the norm — flowing swiftly and steadily from both your client and the counterparty. Managing the M&A process is a master class in organized chaos. Although this can be stressful, it’s also exhilarating. Distilling this varied information in order to best relay it to your client and appropriately address related issues in negotiated deal documentation is at the crux of the job. Some issues will be straightforward, while others will require innovative thinking and skillful creativity. M&A associates often have to be comfortable getting in the weeds of an issue while simultaneously viewing the entire situation from the “20,000 foot level.”
‘In the height of a transaction, the M&A team’s role exists somewhere between emergency room triage and a good game of whack-a-mole.’
How best to prepare
From the soft-skills perspective, multitasking, time management, attention to detail and the ability to think critically will prove immensely valuable to any new M&A associate. In terms of classes, there is no mandatory curriculum. Many law schools offer specific classes in M&A and contract drafting, which introduce law students to the different sections of M&A agreements, provide exposure to relevant legal vernacular and highlight many key transaction drivers. Classes in securities law, corporations, business taxation, finance and accounting are useful as well. However, given the diversity of deals and clients, there are always areas of law you will need to learn on the job. Perhaps the best preparation you can have is getting comfortable saying, “I don’t know, but I’ll find out.”
M&A associates work in different industries and across varied geographies. They also learn to make sense of the unknown and leverage past experience to assist on future deals. No transaction takes place in a vacuum — clients and their businesses exist within the wider, global business, financial and regulatory markets. To that end, start reading The Wall Street Journal, Financial Times and other business news publications. Nobody will quiz you on the front page, but familiarity with the business world will pay dividends as you begin to provide clients with a range of strategic advice.