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| Reverse break fees, go shop and matching rights provisions lead to more legally complex deals |
London, Jan 23, 2012 - (ACN Newswire) - 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
Thomson Reuters Governance, Risk & Compliance
Through the Thomson Reuters Accelus suite of products, the Governance, Risk & Compliance business dynamically connects business transactions, strategy and operations to the ever-changing regulatory environment, providing highly regulated firms with informed outcomes.
Thomson Reuters Accelus is a comprehensive suite of solutions specifically built to address the governance, risk and compliance challenges faced by the boardroom, and its legal, compliance, audit and risk management professionals. Comprising leading solutions provided by the heritage businesses of Complinet, Oden, Paisley, West's Capitol Watch, World-Check, Westlaw Compliance Advisor, Westlaw Business and EDGARfilings, Thomson Reuters Accelus helps customers manage their risk exposure and accelerate their business at every step.
For more information, visit accelus.thomsonreuters.com.
Thomson Reuters
Thomson Reuters is the world's leading source of intelligent information for businesses and professionals. We combine industry expertise with innovative technology to deliver critical information to leading decision makers in the financial, legal, tax and accounting, healthcare and science and media markets, powered by the world's most trusted news organization. With headquarters in New York and major operations in London and Eagan, Minnesota, Thomson Reuters employs more than 55,000 people and operates in over 100 countries. For more information, go to http://thomsonreuters.com .
CONTACT
Paul Sandell
+44 (0) 207 393 7386
paul.sandell@thomsonreuters.com
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Source: Thomson Reuters Corporation via Thomson Reuters ONE
Copyright (c) Thomson Reuters 2012. All rights reserved.
Topic: Press release summary
Source: Thomson Reuters
https://www.acnnewswire.com
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