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New heights: US M&A H1 2021

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US M&A set a new record for value in H1 2021—and nearly surpassed the full-year figure for 2020

A year of historic highs and rapid change

US M&A surged to record levels in the face of pandemic-related challenges and potentially dramatic regulatory shifts

We are just heading into August, but it is already safe to say that 2021 is a historic year for US M&A. Deal value rose to a new high of US$1.27 trillion in H1 2021. This was a 324 percent increase compared to H1 2020—and was virtually equivalent to the total value recorded in all of 2020.

This torrent of deals was the result of a perfect storm of activity on the part of strategic, PE and SPAC dealmakers. The pandemic drove many corporates to offload non-core divisions and acquire digital capabilities. Corporates that thrived during the pandemic used M&A to consolidate gains. PE firms strove to deploy their massive troves of dry powder. And SPACs searched for opportunities to invest the record levels of funds they raised.

The election of Joe Biden as President significantly reduced political uncertainty that may have dampened activity in 2020 and this spurred dealmaking in 2021. However, the administration's policies could also complicate dealmaking.

The Biden Administration is taking vigorous steps to reshape antitrust policies and practices in the US. In July, the President issued an Executive Order to promote competition and lower prices throughout the economy through increased antitrust enforcement. These efforts are likely to intensify during the run-up to the US midterm elections in November 2022. The effects were already visible in the recent decision by Aon and Willis Towers Watson to call off their merger, which they first announced in March 2020. The deal would have created the world's largest insurance broker, but the Department of Justice opposed the deal on the grounds that it would eliminate competition, reduce innovation and lead to higher prices.

CFIUS has shown that it will mostly continue with the more aggressive approach to evaluating deals for national security concerns that was established by the previous administration. And with the appointment of Gary Gensler as Chair of the Securities and Exchange Commission, the administration signaled it will take a more aggressive approach to securities law enforcement.

There are a number of other looming risks as well. The possibility of rising inflation and the end of government support measures related to the pandemic could shock the market. And dealmakers are concerned about potentially frothy valuations.

But perhaps the greatest variable remains the uncertain trajectory of the pandemic. Though the US was on a course of increasing optimism as vaccines were rolled out, recent concerns about the Delta variant of COVID-19 have raised questions—and exacerbated political divisions—about how quickly economies should open up.

Despite these challenges, the outlook for dealmaking remains very positive. US GDP forecasts are upbeat, stock markets are at historic highs, and interests remain low. Moreover, the Biden Administration's economic stimulus efforts and ambitious plans for energy transition and infrastructure development will inject large sums of capital into the economy. We expect US M&A to remain very active in the second half of 2021.

 

US M&A hits record highs

The US enjoyed record levels of M&A activity in H1 2021, as dealmakers made up for lost time caused by pandemic-related disruptions

traffic congestion

Private equity deal activity forges ahead

US private equity has rallied following pandemic lockdowns, thanks to adaptations to remote deal processes and record dry powder

deep tech

Sectors

Sector overview: TMT and healthcare continue to dominate

TMT M&A tops the sector charts again

electronic engineering

Oil & gas M&A rebounds after pandemic lows

After a year of volatility, the oil & gas industry has stabilized and M&A activity has resumed

nozzle

Technology dealmaking goes from strength to strength

Technology M&A activity is thriving in 2021 as dealmakers continue to turn to the sector in search of assets with high-quality earnings and growth prospects

electronic engineering

Healthcare displays strong deal activity post-pandemic

The value of healthcare M&A in H1 surpassed pre-pandemic levels

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Consumer and retail M&A picks up speed

Deals in the consumer and retail sector show signs of recovery as consumer spending
rallies post-pandemic

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Power & renewables M&A soars on back of green policies

The power and renewables industry is positioned for a sustained period of strong deal
activity as the US focuses on hitting net zero carbon emissions by 2050

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Real estate sees welcome revival in M&A in 2021

M&A value among real estate firms quadrupled year-on-year in H1, after a tough 2020

high rise

Infrastructure M&A forges ahead, even before government boost

After a pause, investment in infrastructure has ballooned, even before the Biden administration's US$1 trillion-plus plan is passed

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In focus

US dealmaking braces for more challenging antitrust environment

After campaigning for the presidency on a platform that included more aggressive antitrust enforcement, Joe Biden has taken early steps to honor those pledges

high rise

CFIUS set to continue careful scrutiny under Biden Administration

President Joe Biden's approach to the national security risks posed by foreignbacked M&A may differ in style from his predecessor, but not in substance

cash

Reverse break-up fees emerge in response to deal terminations

Even as economies pick up, dealmakers have maintained focus on managing the risk of broken deals

money printing

SEC to take tougher line on enforcement

New Securities and Exchange Commission Chair Gary Gensler has put scrutiny of
SPACs and private funds at the top of his agenda

language

Notable decisions from Delaware courts

In the first half of 2021, Delaware courts issued several decisions affecting M&A dealmaking

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Six trends to look out for in the second half of 2021

After a turbulent 18 months which saw M&A crash before an impressive return to form, H2 2021 is set for continued strong deal activity, as well as new challenges

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cash

CFIUS set to continue careful scrutiny under Biden Administration

President Joe Biden's approach to the national security risks posed by foreign-backed M&A may differ in style from his predecessor, but not in substance

Insight
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3 min read

Under the Biden administration, the Committee on Foreign Investment in the United States (CFIUS), an interagency committee authorized to review certain transactions involving foreign investment into the US, is expected to operate in a more traditional manner, but with no less rigor.

In the lead-up to the 2020 Presidential election, CFIUS's work was highly publicized amid ongoing trade tensions, particularly with China. Under Biden, the agency has kept a lower profile but remains an essential policy tool for the White House and a key pillar of its strategy to protect US supply chains and mitigate any security risks posed by foreign ownership of critical infrastructure, technology, data and defense capability.

 

A wider scope

The concept of what is relevant to national security remains broad, and CFIUS's focus in recent years has included deals involving semiconductors, finance, cybersecurity, software, healthcare and social media alongside its traditional interest in defense, technology, and critical infrastructure.

CFIUS reviews are expected to be more process-driven and less politically overt under Biden, but the intensity and scrutiny of reviews are proving to be very much in line with what dealmakers have observed in recent years.

CFIUS has bipartisan support and since the enactment of the Foreign Investment Risk Review Modernization Act of 2018, CFIUS has been given additional jurisdiction to review certain non-controlling investments and real estate transactions. Some deals trigger mandatory filings, and, backed by additional resources, CFIUS has grown increasingly aggressive in identifying and reviewing non-notified transactions of interest.

CFIUS's non-notified efforts have included a notable determination to call in deals for review retrospectively, including ones that closed years ago. In some cases, CFIUS objections have led to divestments of assets post-deal on national security grounds, such as Beijing Shiji divesting US hotel software company StayNTouch and China's iCarbonX selling its majority ownership in online healthcare discussion network PatientsLikeMe.

CFIUS officials have reported that the Committee called in more non-notified deals in 2020 than in 2018 and 2019 combined, with 2021 on pace for a 50 percent increase over 2020.

Between CFIUS's increased jurisdictional authority and the aggressive pursuit of non-notified transactions, the equation for whether to voluntarily notify CFIUS ahead of a foreign-backed deal has changed, especially with the Committee deploying additional resources to examine even long-closed transactions.

 

Life on the fast track

Although CFIUS is looking at more deals than in the past and CFIUS scrutiny of sensitive transactions remains high, the process can be effectively navigated with the right preparation.

Unlike FDI oversight regimes in other parts of the world, CFIUS timelines are mandated by statute, which allows parties to build the required time into their timetables.

The CFIUS review process now also offers a fee-free, fast-track review process known as a declaration, which is a short-form filing assessed in 30 days. Complex deals involving countries and sectors deemed to be higher risk are unlikely to benefit from the fast-track process, but for deals less likely to pose national security concerns, the declaration process can be useful. Following a review, CFIUS can clear the transaction; issue a so-called "shrug", meaning the deal is not cleared (and therefore not granted safe harbor) but does not require a full review; or request a full notice.

The most recent figures show that full reviews happen in less than a quarter of cases, indicating parties and CFIUS are generally using the declaration process effectively.

Given mandatory filing requirements, expanded CFIUS jurisdiction and CFIUS's aggressive pursuit of non-notified transactions, CFIUS issues must be considered early in any cross-border deal involving a US business or assets to ensure they are managed properly.

 

 

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© 2021 White & Case LLP

 

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