NEW YORK: An Introduction to Corporate/M&A: The Elite

Corporate/M&A Overview 

Q4 2020 Continued Strong Global M&A Activity Rebound in Q3

Continuing the resurgence in global M&A activity in Q3 2020, Q4 2020 had the highest announced quarterly deal value since Q2 2007, with $1.2 trillion in deal value announced in Q4 2020.

The two strong consecutive quarters, Q3 2020 and Q4 2020, led to $2.2 trillion in global announced deal values in the second half of the year, one of the highest half-year figures in terms of deal value in the last 15 years. September was the single most active month in 2020, with $415.6 billion in global deal value announced.

Despite a strong second half of the year, the subdued first half of 2020 resulted in an overall year-on-year decline by deal value of ~6.6%, compared to 2019. Global deal activity declined by both value and deal count; however, deals of $5 billion or greater increased year-over-year from 91 in 2019 to 111 in 2020. Out of those 111 deals, 79 occurred in the second half of the year.

Decrease in Overall 2020 Cross-Border M&A Activity, but Impact Varied by Region

Cross-border M&A activity was down ~14.2% year-over-year by value, with $1.3 trillion recorded in 2020. While North America saw a ~22.6% decrease in deal value in 2020 compared to 2019, Europe kept pace with 2019 (increase of ~5.6%), with most activity conducted internally. The Asia-Pacific region saw an increase in deal value compared to 2019. In the Middle East & Africa region, outbound M&A activity remained roughly the same compared to 2019, but inbound activity decreased ~41.6% by value and represented one of the lowest amounts of foreign investment in the region in the last five years. Latin America saw some of the greatest declines in cross-border activity, inbound activity decreased ~68.8% year-over-year and outbound activity decreased ~79.6% year-over-year.

US M&A Market on Road to Recovery 

After US M&A activity slammed to a halt in Q2 2020 due to the COVID-19 pandemic, the US M&A market came roaring back in H2 2020. Activity by value in Q3 2020 increased by over 400% compared to Q2 2020 with 1,289 deals worth $421 billion, and strong activity continued in Q4 2020 with 1,471 deals worth $545 billion, which is the highest value for a quarter since 2001. M&A activity for the year (5,243 deals worth $1.3 trillion) still ended down ~16% by deal count and ~21% by value compared to FY 2019 (6,239 deals worth $1.6 trillion).

Strong Year for Private Equity Despite Global Pandemic 

Private equity recorded its highest market share of M&A activity since 2001, and accounted for almost 25% of all deals by volume in 2020.

Despite a substantial decline in activity in Q2 2020 amid the social and economic disruption caused by the COVID-19 pandemic, private equity deal value in FY 2020 rose to its highest annual value since the global financial crisis ($608.7 billion) thanks to strong activity in H2 2020 ($370 billion), reflecting a ~3% increase compared to 2019.

Dramatic Rise in Special Purpose Acquisition Companies (“SPACs”)

In 2020, there was a surge in SPAC activity in the US, with 248 SPAC IPOs in FY 2020 that raised a combined $82.4 billion, a six-fold increase in value compared to FY 2019 ($13.4 billion across 59 IPOs). SPACs have also been targeting larger deals, with the average acquisition size increasing to $1.39 billion in 2020, up from an average of $92 million in 2012.

Major Activity in Certain Sectors 

In terms of global deal value, the Technology, Media, and Telecommunications sector was the most active in 2020, posting ~$851.8 billion worth of deals, accounting for ~26% of global deal value and including two of the five largest deals.

The Energy, Mining and Utilities sector was second, featuring ~$477.7 billion worth of deals and accounting for ~14% of global deal value in 2020. Industrials and Chemicals, Financial Services and Pharma, Medical and Biotech were the three other most active sectors worldwide, featuring ~$394 billion, ~$379 billion and ~$279 billion worth of deals, respectively.

Enhanced Focus on Environmental, Social and Governance (“ESG”) Issues

ESG issues were an area of increased focus through 2020 and this trend is likely to continue through 2021.

Investors have played a key role in promoting this increased attention to ESG. In January 2021, BlackRock CEO Larry Fink published his annual letter to CEOs focusing on climate risk and related disclosures. Mr. Fink also pressed for standardization of ESG disclosure regimes, calling on companies to report in line with the Task Force on Climate-related Financial Disclosures (“TCFD”) and Sustainability Accounting Standards Board (“SASB”) standards, two prominent sustainability reporting frameworks. Other large institutional investors have taken similar steps, with State Street announcing in March 2021 they will begin voting against directors that chair Nominating and Governance Committees if their companies do not make certain racial diversity disclosures. ESG matters have also increased in importance to other investor classes as well, with 2020 seeing significant inflows to ESG funds and Engine No. 1’s campaign against Exxon demonstrating potential greater focus on ESG by activist investors.

Despite calls by investors for greater standardization of ESG disclosures, the landscape remains highly fragmented. While some standard-setters have begun consolidating (such as the merger of the International Integrated Reporting Council into SASB), there remain numerous different (and sometimes contradictory) sustainability reporting frameworks, ESG ratings providers and other sources of ESG data. In an effort to standardize sustainability reporting, the IFRS Foundation (responsible for supervising the International Accounting Standards Board, which establishes IFRS) announced their intent to create a Sustainability Standards Board, with a likely announcement in conjunction with the November 2021 UN Climate Change Conference.

The SEC under Chair Gary Gensler has clearly indicated its intent to prioritize ESG matters. In February 2021, then-Acting Chair Allison Herren Lee directed the Division of Corporation Finance to enhance focus on climate-related disclosures while reviewing companies’ reporting, and subsequently announced the formation of an ESG task force within the Division of Enforcement to focus on ESG-related misconduct. In a March 2021 public statement, Commissioner Lee also requested input on potential climate change-related disclosure regulations, making clear that SEC rulemaking is likely.

Cravath’s Corporate/M&A Practice 

Cravath is one of the preeminent law firms for M&A. Our lawyers are renowned for their outstanding capabilities in complex US and cross-border deals.

Cravath advises companies on their most critical needs across the full spectrum of corporate transactions, including mergers, acquisitions, divestitures, spin-offs, joint ventures, SPACs, PIPEs and strategic investments. In addition to—and often alongside—the M&A that we handle, Cravath is a leading adviser for companies and boards in high-stakes corporate situations, including hostile takeovers and shareholder activism defense.

Both US and non-US clients rely on our leadership and expertise in their most transformative corporate matters, many of which involve multiple jurisdictions across diverse industries.