The geo-political landscape is in flux, and there is a sense that the uncertain outlook marks a significant global shift. US tax and wider policy reforms, the forthcoming European elections and the possible re-set of key global trading relationships will make some businesses pause their M&A plans. Others will make their strategic moves while financing fundamentals remain strong and markets are in their favour. Overall, Clifford Chance expects a reasonably healthy level of M&A in 2017, as creative deal-makers continue to pursue growth opportunities and technological advancement amid ongoing disruption.
We help General Counsel navigate the technical and commercial aspects of M&A and private equity work, as well as other types of transactions. Therefore we present you with three shortlists to set course for promising waters.
We hope you enjoy these tips and trends.
The Top-5 approaches to effective dealmaking – key trends and practical tips
In order to manage the risks and opportunities arising from political volatility as well as the changes in tax and monetary policies and ever-changing financing markets, deal-makers should be prepared and creative in their thinking.
Be prepared Political and economic volatility will continue and borrowers who are prepared will be able to manage this. Key to success will be to ensure financings are planned well ahead of time, to increase the opportunity to go to the market and obtain attractive terms.
Be creative Markets are moving quickly and opportunities are arising in non-traditional spaces. Borrowers that can look at their alternatives creatively will benefit as pricing differentials and the appeal of specific credits can vary significantly between products and markets.
Be flexible Borrowers should ensure that they have sufficient flexibility in their capital structure to wait out any market disruption and optimise their financing. It may be strategically important.
Be discriminating As terms and costs differ significantly between products and currencies and between committed and best-efforts deals, borrowers should challenge any initial market feedback they receive and ensure there is competitive tension between multiple funding options.
Be aware Borrowers should constantly review opportunities and discuss them with their advisors so that all options are known. Only then can informed decisions can be made. The market will innovate quickly and new opportunities arise regularly.
The Top-5 of how to deal with stakeholders
To mitigate the impact of invisible stakeholders’ concerns, deal-makers should diligence the possible stakeholders, engage with them where appropriate and address issues early.
Identify and diligence your stakeholders Identify the universe of ‘invisible stakeholders’, the possible concerns they may have and the challenges they may present. Stakeholder diligence should be scoped early to facilitate a competitive bid with deal certainty.
Head off stakeholder concerns Develop early plans and engage with stakeholders directly and openly to address and resolve anticipated concerns. Focussing on pre-notification procedures with regulators (e.g. under the EU Merger Regulation) is important to create a clean path to antitrust approval. Where divestment conditions are expected, potential purchasers of assets could also be identified, and issues fixed, upfront.
Be mindful when structuring deals
Work with your advisors to structure the deal appropriately and cost efficiently. Jurisdictions in which tax authorities or works councils, for example, are particularly active will require specific deal structuring requirements. Where stakeholders require consultation periods prior to binding agreements, different deal technologies can be adopted.
Consider your contractual protection Including conditions and cooperation requirements in your contracts is essential. Care should be taken to ensure stakeholder requirements have a minimal impact on completion, while ensuring you are sufficiently protected and the stakeholder requirements met. Bespoke contractual terms, economic or otherwise, are useful to manage risk.
Mitigate your risk Stakeholders could jeopardise deal certainty. Tools and products exist to mitigate the risk. Using insurance brokers early on in your process to identify insurable and uninsurable liabilities may enable you to offset a less attractive bid with a higher price. Alternative solutions to manage risk may need to be addressed in the transaction documentation.
6 key deal trends for Technology M&A
Technology M&A poses unique challenges. Issues which were traditionally considered peripheral – data protection, intellectual property ownership, transitional service support – are taking centre stage. These are some of the key deal trends here to stay:
- Battles over IP: Acquisition may be the best route if full control of technology is required. Collaboration rarely results in exclusive IP ownership. Jointly held IP can prove challenging when it comes to further development and improvement of background technology.
- Competitive advantage vs competition concerns: Acquiring exclusive rights to a technology can prevent a competitor from accessing the technology or eliminate the target as a competitor. But this is a potentially high-risk strategy and requires careful consideration of antitrust matters.
- The politics of a JV: Businesses are increasingly avoiding the JV route. The formality of the structure, particularly the politics of governance, strategy and exit, can prove overly prescriptive in this fast-moving sector.
- Separation and integration headaches: Getting hold of the technology is not enough: it may need to be separated from the seller group, and integrated into a new and very different business. This challenge can be especially acute when a non-technology business acquires a highly innovative tech business. These issues can take many months, if not years, to resolve.
- Big data, big problems: Data is often a key target for an acquisition. Grand plans are developed around its use and exploitation. But set against this is an increasingly aggressive and defensive legal environment. Consumers are starting to value and defend their privacy. Data is a valuable asset, but new laws may start to erode its value, unless you think ahead.
- Growing pains: The most innovative businesses tend to be fast-moving and work outside rigid structures, not afraid to challenge orthodoxy. Post-acquisition, the structure and compliance culture of a large business can sometimes work against this. Striking a balance is key.
You can find the global M&A report 2017 on our website in the Global M&A Toolkit. If you have any questions, please feel free to contact Jeroen de Bruin, Senior Marketing & Communications Manager (Jeroen.deBruin@cliffordchance.com or +31 20 711 9000).
