2015 was another sizzling year for mergers and acquisitions, and Orange County law firms handled some of the biggest transactions. Latham & Watkins and Rutan & Tucker LLP, both based in Costa Mesa, and Newport Beach-based Stradling Yocca Carlson & Rauth PC all got robust M&A business last year and said they anticipate the same this year.
2016 is already on track to exceed last year’s M&A volume, according to Cary Hyden, partner and former chairperson of Latham’s corporate department.
The continued torrid pace is due to a number of factors, Hyden said. First, there’s a tremendous amount of available private equity money, and investors are on the lookout for opportunities.
“With the capital markets being a little more uncertain, a lot of those dollars are going into M&As,” he said.
Second, industry competition, particularly in pharmaceuticals and technology, is forcing companies to look for ways to operate more efficiently, and mergers and acquisitions can be strategic opportunities to achieve that goal, he said.
Also, there’s been a significant increase in activist-focused hedge funds successfully taking positions in public companies and “agitating for M&A transactions,” he said.
He should know, since he burnished his dealmaker credentials during the thwarted hostile takeover of Irvine-based Allergan Inc. and the subsequent friendly $73 billion sale of the company to Actavis, which kept the Allergan name. The rollercoaster developments leading up to the acquisition riveted the M&A world during most of 2014 and put Hyden front and center in the negotiations.
Nuts and Bolts
The skill set needed to facilitate such deals includes experience with a variety of transactions, including asset purchases, stock purchases, mergers, joint ventures and strategic alliances, according to Gregg Amber, chairperson of Rutan’s corporate, securities and tax section.
“Someone who’s had experience doing all different kinds of structures would be in a better position to analyze and help clients decide which would be best for them,” he said.
It’s also helpful when the entities involved in a deal have good accountants and investment bankers, he added.
“A few investment bankers kind of want to put parties together and step aside and wait to earn their fee. I’ve been fortunate to work with many who are more proactive in helping the deal move forward. It can help close the deal quickly and efficiently.”
Companies embarking on mergers and acquisitions seek out particular law firms based on their sophistication of expertise and experience handling complex transactions, Hyden said.
Many local deals are tax-driven in some way, so firms with attorneys experienced in analyzing tax implications for both the purchaser and the seller are in demand, according to Kevan Graydon, a partner with Rutan.
Ripe Industries
The industries most likely to have heavy M&A activity this year are pharmaceutical, biotech and tech, based on recent activity, Hyden said.
Some oil and gas companies also may be especially vulnerable due to the volatile price of oil, Amber said.
“Especially smaller ones that can’t make money at $30 a barrel but are hanging on,” he said. “Their financial situations are getting worse and worse. I have a feeling there are a good number (of them), that if oil prices don’t improve this year, (they) will have to sell out completely or sell off portions of their assets.”
Mark Skaist, shareholder and co-chairperson of Stradling’s corporate department, said he foresees an increase in M&As in nontraditional industries.
“Financial buyers are scouring the earth for good deals and are starting to look at industries that might not have been on their radars in prior years,” he said. “For example, we’ve worked on deals recently involving baby products and food and beverage companies, including craft beer.”
Also, smaller players in certain industries like aerospace, building materials and corrugated packaging may be targets for M&As because there is significant consolidation occurring in those industries, Amber said. The major players, particularly those that are vertically integrated, such as Atlanta-based Georgia-Pacific Corp. and Federal Way, Wash.-based Weyerhaeuser, will be making acquisition proposals, he added.
Two Good Years?
There were approximately $140 billion in announced transactions out of Latham’s office last year, more than $2 billion out of Stradling’s office, and more than $1 billion from Rutan.
Hyden is bullish on 2016 being another banner year. He noted that there are more M&A deals in the pipeline than he’s seen in his 20 years at Latham.
“2015 was our firm’s best year ever. We had over $710 billion of announced transactions (firmwide). That’s a record. … Expectations are that we’ll shatter that in 2016 with an unprecedented backlog of transactions that we’re involved with now.”
Amber agreed that this year has the potential to be another big one for M&As but added a caveat: the presidential election, which “has the potential to throw a monkey wrench into M&A activity.”
“Depending on the political landscape, a lot of people may decide, ‘I’m just going to slow down and wait and see what happens,’” he said. “I’m thinking that could be more true this year than ever because of who’s in the race. Can you imagine how different a country it would be run by Trump versus Bernie Sanders?”
