Deal Lawyers See Trump Measures as Boost to Cross-Border M&A

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By Yin Wilczek

Cross-border mergers and acquisitions will continue to be strong for the rest of 2017, and could be boosted if the Trump administration gains ground on its pro-business agenda, deal attorneys told Bloomberg BNA.

According to a Bloomberg BNA analysis, acquirers proposed or announced 5,041 cross-border deals totaling about $1.172 trillion during the first half of the year. If that pace continues for the rest of the year, total cross-border deal volume will be more than $2.3 trillion, which would break the previous record of $2.24 trillion set in 2007.

“M&A activity continues to flourish at historically high levels,” said David Gibbons, global head of Hogan Lovells’ Corporate Practice group who’s based in London and Washington.

Much of the activity has been at the smaller to mid-markets, and “we have not seen the number of megadeals as in the first half of 2016,” Gibbons told Bloomberg BNA. “We think private equity is and will continue to become more active.”

Once there is greater certainty on measures planned by the Trump administration, including initiatives related to tax, repatriation of corporate cash, and deregulation, that “would create an environment that may stimulate more activity,” he said.

Recent major cross-border deals include Starbucks Corp.'s announcement July 27 that it will buy the rest of its East China joint venture in a $1.3 billion transaction.

U.S. Targets

In terms of foreign acquisitions of U.S. companies, Canada continues to play a major role, according to the Bloomberg BNA analysis. Between 2008 and 2017, more than a quarter of all cross-border acquirers of U.S. companies hail from Canada.

In other highlights, German interest in U.S. companies declined sharply in the first half of 2017. German acquirers proposed or announced acquisitions during this period that were worth about $12.8 billion, which is less than 15 percent of the volume of acquisitions announced last year. However, the sharp decline may be due in part to the outsized $66 billion combination announced in 2016 between Bayer AG and Monsanto Co.

Looking ahead, Gibbons said his firm is seeing foreign interest in U.S. real estate, infrastructure and technology, including in the fintech and automotive industries.

That holds true also for Europe and Germany, said Christoph Louven, co-head of Hogan Lovells’ Corporate Practice for continental Europe who’s based in Düsseldorf, Germany.

Many fintech and insurtech companies, instead of developing their own technologies, will be looking to acquire startups, Louven told Bloomberg BNA. “This whole topic of digitalization” will fuel M&A activity in the next few years, mainly in the mid-sized market.

Antitrust, CFIUS Review

Antitrust scrutiny of deal activity also may be easier this year, once the Federal Trade Commission and the top antitrust spot at the Justice Department are filled, said Aly El Hamamsy, a New York-based corporate partner at Freshfields Bruckhaus Deringer LLP.

Under the Obama administration, there was a “real uptick in transactions being challenged,” El Hamamsy told Bloomberg BNA. “That uptick works its way upstream into boardrooms when people are considering whether to pursue deals or not.” When the dust settles on the FTC and DOJ, “our expectation is that whatever standard for review the new administration takes on antitrust, it will be less stringent” than that taken under the Obama administration, he said.

The FTC has three empty seats that await nominations by President Donald Trump. Its two sitting members are acting Chairman Maureen K. Ohlhausen, a Republican, and Commissioner Terrell McSweeny, a Democrat.

Makan Delrahim, Trump’s pick to head the DOJ’s antitrust division, still awaits confirmation.

Another uncertainty for cross-border M&A may be the Committee on Foreign Investment in the United States, the secretive interagency group whose members include the heads of the Treasury Department, Justice Department and Defense Department. CFIUS’s mandate is to review foreign acquisitions of U.S. companies that may impact national security.

Foreign buyers of U.S. targets, including the Chinese, are resubmitting their applications for CFIUS approval for fear of being turned down, El Hamamsy said. If CFIUS’s 75-day review period is close to expiring without it taking action, that usually means it has identified a national security issue, but hasn’t yet found a remedy that would satisfy it, he said. Companies are pulling applications that haven’t received CFIUS approval close to the end of the 75-day review period and refiling new applications to give themselves a chance to work out revisions to their transactions and/or devise new remedies that could satisfy CFIUS’s national security concerns.

“There’s just a longer backlog now on transactions that are sitting with CFIUS,” El Hamamsy said. “The question is, what will the outcome of” these reviews be?

That will guide some of the cross-border activity for the rest of 2017, “certainly from China and other places,” he said.

To contact the reporter on this story: Yin Wilczek in Washington at ywilczek@bna.com

To contact the editor responsible for this story: Susan Jenkins at sjenkins@bna.com

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