M&A 2021 Annual Report | Morrison & Foerster

2021 annual report

M&A

238

Deals over $1 billion in value

Billion approximate total value

M&A transactions

215

FEATURED DEALS

M&A TRENDS

2021 DEALS

FEATURED DEALS

Read details on several of MoFo’s marquee M&A transactions from 2021, from blockbuster SPAC transactions, to complex cross-border deals.

M&A TRENDS

Review key moments that shaped the M&A market in 2021, and learn about major trends we expect to impact deal making in 2022.

2021 DEALS

Learn more about the 200+ global M&A transactions that MoFo is proud to have advised on in 2021.

M&A TRENDS

M&A in 2021 and Trends for 2022

M&A IN 2021 and 2022 trends

2021 M&A smashed U.S. and global records. The year saw the arrival of a new U.S. administration, the release of COVID-19 vaccines, as well as continued questions regarding the impact of the pandemic, including the year-end Omicron surge, the impact of supply chain shortages, and the onset of inflation. Dealmakers faced increased antitrust, foreign investment and other regulatory pressures, potential changes in financing markets and tax rules, and other challenges (including their own capacities in the face of record workloads). Shareholder activism continued to rebound, frequently complicating, and sometimes encouraging, transactions. Deal terms continued to evolve in response to these and other developments. But the economy grew, equity markets rose, financing was available at low rates, and dealmakers proved resilient, driving M&A activity, despite some tapering off in Q4, to new heights that are widely predicted to continue well into 2022.

1/9

2021 DEALS

2021 REPRESENTATIVE DEALS AT A GLANCE

deals over $1 billion in value

Billion approximate total value

$238

M&A transactions

215

Sale of Verisem to Syngenta's Vegetable Seeds Business Counsel to Paine Schwartz Partners and Verisem

Sale of Ownership Interest in Conservis to Rabobank and TELUS Agriculture Counsel to Pontifax AgTech

BY INDUSTRY

Other

Business & Professional Services

4/9

in 2020

M&A

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2015

2016

2017

2018

2019

2020

Source: Mergermarket

U.S. SECTOR BREADOWN TREND

2015-2020

5/9

in 2020

M&A

2015

2016

2017

2018

2019

2020

Source: Mergermarket

U.S. SECTOR BREADOWN TREND

2015-2020

6/9

in 2020

M&A

2015

2016

2017

2018

2019

2020

Source: Mergermarket

U.S. SECTOR BREADOWN TREND

2015-2020

7/9

in 2020

M&A

2015

2016

2017

2018

2019

2020

Source: Mergermarket

U.S. SECTOR BREADOWN TREND

2015-2020

9/9

in 2020

M&A

2015

2016

2017

2018

2019

2020

Source: Mergermarket

U.S. SECTOR BREADOWN TREND

2015-2020

Sale to ABM Industries Counsel to Able Services

$830 Million

Acquisition of Bradford-Scott Data Corp Counsel to Evergreen Services Group, Backed by Alpine Investors

Investment in Interskill Learning Counsel to Alpine Investors

Acquisition of VirtualArmour Counsel to Evergreen Services Group, Backed by Alpine Investors

Acquisition of Advanced Climate Solutions Counsel to Orion Group, Backed by Alpine Investors

Acquisition of ColoradoScapes Counsel to Orion Group, Backed by Alpine Investors

Acquisition of Telco Experts LLC Counsel to Evergreen Services Group, Backed by Alpine Investors

Privatization of Tarena International Counsel to Ascendent Capital Partners

$230 Million

ATN INTERNATIONAL

Axalta

Cambridge Quantum computing

DIVVY

FYBER

GCA

LIVEKINDLY Collective

SILVER CREST

SOFTBANK

SOUTHWEST GAS

Alpine Investors

eBay

Protomer Technologies

Michael Prior Chairman and CEO ATN International

Our industry is rapidly changing, and communications requirements have never been more essential and critical than they are today. We look forward to combining our resources and experience with Alaska Communications’ market knowledge and reputation for superior service to provide industry-leading communications products and services to customers in Alaska and beyond.

atn international

Morrison & Foerster advised Project 8, LLC, a new entity formed by ATN International, Inc. (Nasdaq: ATNI) and its financial partner Freedom 3 Capital, LLC, in connection with Project 8’s acquisition of Alaska Communications Systems Group, Inc. (Nasdaq: ALSK), the leading provider of advanced broadband and managed IT services for businesses and consumers in Alaska. The all-cash transaction was valued at approximately $332 million, including outstanding net debt. This go-private transaction involved outbidding a financial buyer who had previously signed a merger agreement at a lower price and involved multiple public bids over an extended period. The transaction closed in July 2021 with Project 8 acquiring all the outstanding shares of Alaska Communications common stock for $3.40 per share in cash. Through its majority ownership stake, ATN now operates Alaska Communications. ATN invests in and operates communications, energy, and technology businesses in the United States and internationally, including the Caribbean region, with a particular focus on markets with a need for significant infrastructure investments and improvements.

Robert Bryant CEO Axalta

U-POL’s expertise in refinish accessories and protective coatings is highly complementary to Axalta’s business and expands our addressable market into the important and growing mainstream and economy-based refinish segment as well as the consumer do-it-yourself (DIY) aftermarket.

AXALTA

Morrison & Foerster represented Axalta Coating Systems Ltd. (NYSE: AXTA) in its acquisition of the share capital of U-POL Holdings Limited for £428 million in cash (approximately $590 million). Axalta is a global leader in the paints and coatings industry, providing customers with paints and coatings for a broad range of applications including light vehicles, commercial vehicles, vehicle refinish, building facades, and other industrial applications. U-POL, based in the United Kingdom, is a leading manufacturer of repair and refinish products primarily for automotive refinish and aftermarket protective applications. U-POL sells its products in over 100 countries and is widely known for its leading brands, including Raptor®, Dolphin®, and Gold™, among others. Axalta will accelerate growth of U-POL’s products by expanding market access through Axalta’s existing sales and distribution channels while leveraging U-POL’s distribution channels to extend the reach of its Refinish Coatings portfolio to new customers.

Ilyas Khan Founder and CEO Cambridge Quantum Computing

Together we will lead the industry as it grows and matures, and create tangible, credible, provable and science-led advances.

Cambridge Quantum computing

Morrison & Foerster advised UK-headquartered Cambridge Quantum Computing, a global leader in quantum computing software, in its merger with U.S.-based Honeywell Quantum Solutions, the quantum computing hardware business unit of Honeywell International Inc. (NYSE: HON). The combination will create the world’s leading integrated quantum computing company that will build quantum solutions addressing some of humanity’s greatest challenges, setting the pace for what is projected to become a $1 trillion quantum computing industry over the next three decades. The combined company, Quantinuum, brings together an unparalleled quantum computing technology and solutions portfolio, and will offer one of the world’s highest performing quantum computers and a full suite of quantum software, including an advanced quantum operating system. These technologies will support customer needs for improved computation in diverse areas, including cryptography, drug discovery and delivery, material science, finance, and optimization across all major industrial markets.

Blake Murray CEO and Co-Founder Divvy

We are excited to be joining forces with Bill.com to help SMBs grow and thrive by modernizing and transforming their financial operations.

divvy

Morrison & Foerster advised Divvy, a leader in spend management, on its sale to Bill.com (NYSE: BILL), a provider of cloud-based software that simplifies, digitizes, and automates complex back-office financial operations for small and midsize businesses (SMBs), in a stock and cash transaction valued at approximately $2.5 billion. Divvy modernizes finance for businesses by combining expense management software and smart corporate cards into a single platform. The combination will enable Divvy to offer automated payable, receivables, and workflow capabilities to the more than 7,500 monthly active SMBs that it serves. The acquisition supports Bill.com’s mission and enhances its ability to deliver value to the combined customer base. Bill.com’s expanded solution will enable businesses to automatically manage accounts payable, accounts receivable, and corporate card spend all in one place, saving them valuable time and money.

Bill Stone CEO Digital Turbine

Fyber has delivered impressive growth over the last quarters. Their comprehensive mobile monetization suite has powered this growth and created a defensible market position as a top monetization partner for leading global game publishers. We are committed to ongoing investment in Fyber’s product stack, growing their partner network, and enabling new growth opportunities from synergies throughout Digital Turbine, its customers and partners."

FYBER

Morrison & Foerster advised Berlin-based Fyber N.V. (FSE: FBEN), a leading mobile advertising technology company with a best-in-class in-app publisher offering, on its takeover by Digital Turbine, Inc. (Nasdaq: APPS), a global mobile marketing company that simplifies content. discovery and delivers content directly to the device with the company’s on-device media platform. Digital Turbine, which is headquartered in Austin, Texas, signed a binding agreement with Fyber’s majority shareholder to acquire more than ninety percent of the shares in Fyber. One hundred percent of the Fyber shares are valued at up to $600 million, minus Fyber’s liabilities. The completion of Fyber’s takeover created a new mobile media powerhouse that will constitute the largest independent platform for app publishers, performance marketers, and top global brands, providing comprehensive media and advertising solutions for its carrier and OEM (original equipment manufacturer) partners while enriching the mobile experience for end users through native on-device discovery.

Aki Watanabe, Founder and Representative Director, GCA

Houlihan Lokey and GCA are highly complementary geographically and in terms of expertise, at the same time sharing the common key values and culture of always focusing on our clients’ best interests.

GCA

Morrison & Foerster acted as sole counsel to GCA Corporation (TYO:2174), the premier Tokyo-based global investment banking firm, in the recommended tender offer to its shareholders to acquire all outstanding shares of GCA by the global investment bank Houlihan Lokey, Inc. (NYSE:HLI) for a total cash purchase price of JPY65 billion (or approximately $591 million). With the addition of over 500 talented individuals from GCA located across 24 locations, Houlihan Lokey now ranks as one of the largest independent investment banking firms by public market cap, and, by significantly expanding the firm’s presence in Asia and in Europe through the merger, as one of the most geographically diversified firms among its global peers. The combined firms form one of the largest independent global M&A advisory firms and one of the most experienced technology advisory firms.

Kees Kruythoff CEO and Chairman LIVEKINDLY Collective

Bringing No Meat into the LIVEKINDLY Collective family as a mission aligned partner was a natural next step for us. Its strategy to meet the demand of consumers for healthier and more environmentally friendly vegan products mirrors our own commitment to protect the planet. It is aligned with our strategy to scale rapidly and transform the current global food system.

LIVEKINDLY Collective

Morrison & Foerster advised LIVEKINDLY Collective, a collection of heritage and startup brands on track to become one of the world’s largest plant-based food companies, on its acquisition of No Meat, Iceland Foods’ vegan meat alternative company with products currently available in Iceland and the UK. Under the leadership of global food industry executives, LIVEKINDLY Collective is working to make plant-based food the new norm by building a robust ecosystem of founder-led, plant-based brands that include Fry Family Food Co., LikeMeat, Oumph!, lifestyle digital media platform, LIVEKINDLY, and now No Meat. With this transaction, LIVEKINDLY Collective underlines its ambition to spearhead the worldwide food revolution proclaiming environmentally friendly meat alternatives.

Leon Meng Chairman Silver Crest Acquisition Corporation

In January 2021, we established Silver Crest to partner with the emerging leaders in the high-growth tech-enabled consumer sector, leveraging our long and successful track record of investments in China. For decades, we have been very focused on providing strategic advice, enabling companies to improve operations and, in that process, creating new industry leaders.

silver crest

Morrison & Foerster advised China-based and U.S.-listed Silver Crest Acquisition Corporation (Nasdaq: SLCR), a SPAC sponsored by affiliates of Ascendent Capital Partners, a private equity firm focused on Greater China-related investment opportunities, in connection with its $1.7 billion business combination with TH International Limited (“Tims China”), a master franchisee and operator of the iconic Canadian coffee shop chain Tim Hortons in China. Merging with Silver Crest Acquisition Corporation will provide Tims China, which has more than doubled its store count since the start of 2021, with capital for future store development and other potential growth investments.

Sandeep Mathrani, CEO, WeWork

Today is a testament to the determination of our company to not only transform our business, but also to adapt and deliver the options that today’s workforce demands. As companies around the world reimagine their workplace, WeWork is uniquely positioned to offer the space and services that can power solutions built around flexibility. Providing employers and landlords around the world with our holistic offering of space-as-a-service, All Access and workplace management technology will enable WeWork to lead the market in mainstream adoption of flexible space.

softbank

As in prior years, Morrison & Foerster advised SoftBank Group Corp. on numerous transactions in 2021, including its $2.8 billion acquisition of 40% of AutoStore, its role in Social Finance’s $8.65 billion acquisition via a deSPAC transaction, and its investment activity in Latin America. As an example, we advised SoftBank as the largest investor in WeWork, the leading flexible space provider, in connection with WeWork’s agreement to merge with BowX Acquisition Corp. (Nasdaq: BOWX, BOWXU and BOWXW), a SPAC, which took the company public. The transaction valued WeWork at an initial enterprise value of $9 billion and provided WeWork with $1.3 billion of cash to fund the company’s growth plans. The company now operates as WeWork Inc. and trades on the New York Stock Exchange under the ticker “WE.”

John P. Hester President and CEO Southwest Gas

The acquisition of Questar Pipelines is a milestone moment for the Company that we believe will provid significant financial and strategic benefits...as we continue to significantly increase our role in the transitioning energy landscape. This acquisition accelerates our energy transition strategy by strengthening our ability to provide affordable, low carbon energy to customers while positioning us to transport renewable natural gas, responsibly sourced gas, and eventually, hydrogen and CO2.

Southwest Gas

Morrison & Foerster is advising Southwest Gas Holdings, Inc. (NYSE: SWX) in connection with its defense against a hostile tender offer by Carl Icahn and related entities to acquire any and all shares of Southwest Gas and a proxy contest to replace the entire board of directors. This work follows on our representation of Southwest Gas in its $2 billion acquisition of Questar Pipeline, consisting of Dominion Energy Questar Pipeline, LLC, its subsidiaries, and certain associated affiliates, including Overthrust Pipeline, White River Hub, and Questar Field Services, from Dominion Energy, Inc. In 2021, we also advised Southwest Gas in connection with the $855 million acquisition by its wholly owned subsidiary, Centuri Group, of Riggs Distler & Company, Inc., which self-performs turnkey union construction solutions in the utility, telecom, and industrial markets in the Northeast and Mid-Atlantic regions of the United States, and its affiliates.

We are lucky to have acquired an amazing group of businesses across the commercial HVAC, commercial landscaping and facilities services markets. We couldn’t be more excited to support our companies as they continue to grow their footprints and invest in their teams.

Isaiah Brown Co-CEO Orion Services Group

Alpine Investors

Morrison & Foerster advised Alpine Investors, a people-driven private equity firm based in San Francisco, and its portfolio company, Orion Services Group, as they executed their buy-and-build strategy through multiple acquisitions in 2021. Specifically, Morrison & Foerster represented Orion in nine acquisitions in 2021 of leading providers of commercial HVAC, landscaping, and facilities maintenance services, including the acquisitions of Advanced Climate Solutions, Air Comfort Corp., Texas Chiller Systems, and ColoradoScapes. Orion Services Group is a commercial facility services company seeking to partner with leading family-owned service providers, and it plans to build a national platform by investing in leading local businesses with great cultures, attracting the best technical and managerial talent, and creating unmatched growth opportunities.

FEATURED DEALS

Acquisition of GE Johnson Counsel to DPR Construction

Sale to United Rentals Counsel to General Finance

$996 Million

Acquisition of ComplianceMAX and FIRE Continuing Education Counsel to Gryphon Investors

Acquisition of Commercial Security Integration Counsel to Paladin Technologies

Acquisition of Spectra AudioDesign Counsel to Paladin Technologies

Acquisition of VTI Security Counsel to Paladin Technologies

Sale of PAE to Amentum Holdings Counsel to Raymond James Financial, Financial Advisor to PAE

$1.9 Billion

Strategic Majority Investment in the Merger of EverTrue and ThankView Counsel to Rubicon Technology Partners

Acquisition of Managed Care Advisors Counsel to Sedgwick Claim Services

Investment in Eightfold AI Counsel to SoftBank

$220 Million

Investment in Afya Counsel to SoftBank

$150 Million

Investment in Contabilizei Counsel to Softbank

Purchase of Assets from Mya Systems Counsel to StepStone GmbH, a Subsidiary of Axel Springer

Merger of Confirmit with FocusVision Worldwide Counsel to Verdane Capital and its Porfolio Company Confirmit

$365 Million

Sale to LivePerson Counsel to VoiceBase

Sale to Caisse de dépôt et placement du Québec (CDPQ) Counsel to Management Team of Wizeline

Acquisition by Newfold Digital Counsel to Yoast BV

Consumer Products & Retail

Acquisition of a Minority Stake in Expondo Counsel to CIC Capital

Acquisition of Ausnutria Dairy Corporation by Yili Industrial Group Counsel to CLSA Capital Markets, Financial Advisor to Yili Industrial Group

$1.82 Billion

$585 Million

Acquisition of Sneaker Con Digital Counsel to eBay

Acquisition of Eyce Counsel to Greenlane

Merger with KushCo Holdings Counsel to Greenlane

Acquisition of DaVinci Counsel to Greenlane

Sale to PLBY Group Counsel to Honey Birdette

$333 Million

Investment into Ci FLAVORS Counsel to L Catterton

Joint Venture with RCL Foods to Establish LIVEKINDLY Collective Africa Counsel to LIVEKINDLY Collective

Acquisition of No Meat Counsel to LIVEKINDLY Collective

Acquisition of Phillips Syrups and Sauces Counsel to Lyons Magnus

Investment in Registrar Corp. Counsel to Paine Schwartz Partners

Acquisition of Porto Pet Counsel to Petlove

Acquisition of SV Labs Counsel to San Francisco Equity Partners

Acquisition of Bocce's Bakery Counsel to Antelope, Backed by Alpine Investors

De-SPAC Merger with TH International Limited ("Tims China") Counsel to Sliver Crest Acquisition Corporation

$1.7 Billion

Investment in Meesho Counsel to SoftBank

$300 Million

Investment in MadeiraMadeira Counsel to SoftBank

$190 Million

Investment in Descomplica Counsel to SoftBank

$83 Million

Investment in GAIA Counsel to SoftBank

$50 Million

Sale to Digital Brands Group Counsel to Stateside

$10 Million

Equity Investment in Rakuten Counsel to Tencent Holdings

$2.2 Billion

Acquisition of MeMD Counsel to Walmart

Acquisition of Texas Chiller Systems Counsel to Orion Group, Backed by Alpine Investors

Acquisition of Bradford-Scott Data Corp. Counsel to Evergreen Services Group, Backed by Alpine investors

Investment in Interskill Learning Counsel to Alpine Investors

Acquisition of VirtualArmour Counsel to Evergreen Services Group, Backed by Alpine Investors

Acquisition of Advanced Climate Solutions Counsel to Orion Group, Backed by Alpine Investors

Acquisition of 24 Hr Homecare Counsel to TEAM Services Group, Backed by Alpine Investors

Acquisition of ColoradoScapes Counsel to Orion Group, Backed by Alpine Investors

Acquisition of Bocce's Bakery Counsel to Antelope, Backed by Alpine Investors

Acquisition of Telco Experts LLC Counsel to Evergreen Services Group, Backed by Alpine Investors

Acquisition of Specialized Packaging Solutions (SPS) Counsel to Altamont Capital and its Portfolio Company Specialized Packaging Group (SPG)

Acquisition of Packaging Concepts & Designs (PC&D) and Packaging Specialists. Inc. (PSI) Counsel to Altamont Capital and its Portfolio Company Specialized Packaging Group (SPG)

Sale to Griffin-American Healthcare REIT III Counsel to American Healthcare Investors

$135 Million

Sale to Griffin-American Healthcare REIT III Counsel to American Healthcare Investors

$135 Million

Sale of the 190 MW Jayhawk Wind Project to Affiliates of WEC Energy Group and lnvenergy Counsel to Apex Clean Energy

Privatization of Tarena International Counsel to Ascendent Capital Partners

$230 Million

Sale of Etern Group to Hygeia Counsel to Ascendent Capital Partners

$267 Million

Sale of Etern Group to Hygeia Counsel to Ascendent Capital Partners

$267 Million

Topping Bid Acquisition of Alaska Communications Systems Group Counsel to Project 8, LLC, a Subsidiary of ATN International

$332 Million

Acquisition of ProEst Counsel to Autodesk

Acquisition of U-POL Holdings Counsel to Axalta

428 Million

Grab's Merger with Altimeter Growth Corp. Counsel to Grab's Investor

$39.6 Billion

A Leading Institutional Investor

Acquisition of Pronto Money Transfer Inc. ("USEND") Counsel to Banco Inter, S.A.

$157 Million

Divestiture of a Global Engine Parts Manufacturing Portfolio Company Counsel to Carlyle Japan

Sale of its Research Models and Services Operations in Japan to The Jackson Laboratory Counsel to Charles River

$63 Million

Acquisition of a Minority Stake in Expondo Counsel to CIC Capital

Acquisition of Ausnutria Dairy Corporation by Yili Industrial Group Counsel to CLSA Capital Markets, Financial Advisor to Yili Industrial Group

$1.82 Billion

Merger with Pathstone Counsel to Cornerstone Capital Group

Merger with Honeywell Quantum Solutions Counsel to Cambridge Quantum Computing

Acquisition of 80% Equity Interest in CastleRock Communities LLC Counsel to Daiwa House Industry Co.

$408 Million

Sale to Bill.com Counsel to Divvy

$2.5 Billion

Acquisition of Level One Counsel to Doxim

Acquisition of Direct Technologies, Inc. Counsel to Doxim

Acquisition of GE Johnson Counsel to DPR Construction

Sale to Synaptics Counsel to DSP Group

$538 Million

Noble Corporation's Merger with Pacific Drilling Company LLC Counsel to Ducera Partners, Financial Advisor to Noble Corporation

Noble Corporation's Merger with Maersk Drilling Counsel to Ducera Partners, Financial Advisor to Noble Corporation

$4.72 Billion

Noble Corporation's Merger with Pacific Drilling Company LLC Counsel to Ducera Partners, Financial Advisor to Noble Corporation

Noble Corporation's Merger with Maersk Drilling Counsel to Ducera Partners, Financial Advisor to Noble Corporation

$4.72 Billion

Iconix Brand Group's Sale to Lancer Capital, LLC Counsel to Ducera Partners, Financial Advisor to Iconix

$585 Million

FTS International's Sale to ProFrac Holdings Counsel to Ducera Partners, Financial Advisor to FTS

$407.5 Million

FTS International's Sale to ProFrac Holdings Counsel to Ducera Partners, Financial Advisor to FTS

$407.5 Million

Acquisition of Sneaker Con Digital Counsel to eBay

Acquisition of DOCUFY GmbH, a Subsidiary of Heidelberger Druckmaschinen AG Counsel to Elvaston Capital Management

Acquisition of Controlling Stake in Donuts Inc. from Abry Partners Counsel to Ethos Capital

Acquisition of xCheck Counsel to Flyr

Acquisition of Faredirect Counsel to Flyr

Sale to Harvest Partners by Main Post Partners Counsel to Fortis Solutions Group

Takeover by Digital Turbine Counsel to Fyber

$600 Million

Sale to Houlihan Lokey Counsel to GCA

$591 Million

Sale to United Rentals Counsel to General Finance

$996 Million

Sale to Grifols Counsel to GigaGen

$80 Million

Acquisition of Guangzhou Greenland Real Estate Development Co. Counsel to Greenland HK

$1.12 Billion

Acquisition of ComplianceMAX and FIRE Continuing Education Counsel to Gryphon Investors

Investment in Uplight Counsel to Huck Capital and Schneider Electric

Acquisition of Anam Counsel to lnfobip

Acquisition of Clever Counsel to Kahoot!

$500 Million

Sale to Elanco Animal Health Counsel to Kindred Biosciences

$440 Million

Investment into Ci FLAVORS Counsel to L Catterton

Acquisition of Phillips Syrups and Sauces Counsel to Lyons Magnus

Strategic Growth Investment in Guided Practice Solutions ("GPS Dental") Counsel to Main Post Partners

Fortis Solutions' Acquisition of Total Label USA, LLC Counsel to Main Post Partners and Fortis Solutions Group

Sale of HQ@First, An Office Park in San Jose, CA Counsel to Subsidiary of Mori Trust Co.

$535 Million

Sale of Debt Servicing and Securities Custody Services Client Portfolio to U.S. Bank Counsel to MUFG Union Bank

Acquisition of Majority Ownership of Morf3D Inc. Counsel to Nikon Corporation

Acquisition of GT Advanced Technologies Counsel to onsemi

$415 Million

Sale to J.P. Morgan Counsel to Openlnvest

$200 Million

Investment in Registrar Corp. Counsel to Paine Schwartz Partners

Sale of Verisem to Syngenta's Vegetable Seeds Business Counsel to Paine Schwartz Partners and Verisem

Sale of Ownership Interest in Conservis to Rabobank and TELUS Agriculture Counsel to Pontifax AgTech

Disposal of 100% of a Cosmetics Packaging Company to a Special Purpose Vehicle Counsel to Prax Capital

$60 Million

Five9's Sale to Zoom Video Communications (Terminated) Counsel to Qatalyst Partners, Financial Advisor to Five9

$14.7 Billion

$5.2 Billion

Five9's Sale to Zoom Video Communications (Terminated) Counsel to Qatalyst Partners, Financial Advisor to Five9

$14.7 Billion

Cornerstone OnDemand's Sale to a Subsidiary of Clearlake Capital Group Counsel to Qatalyst Partners and Centerview Partners, Financial Advisor to Cornerstone OnDemand

$5.2 Billion

Acquisition of Certain Assets from Li-Cor Counsel to Rakuten Medical

Sale of PAE to Amentum Holdings Counsel to Raymond James, Financial Advisor to PAE

$1.9 Billion

Acquisition of SV Labs Counsel to San Francisco Equity Partners

Sale of Sequlite Genomics to Fapon Biotech Counsel to SequliteGenomics

Sale to Zillow Group Counsel to ShowingTime.com

$500 Million

De-SPAC Merger with TH International Limited ("Tims China") Counsel to Sliver Crest Acquisition Corporation

$1.7 Billion

Merger with Yellowstone Acquisition Company Counsel to Sky Harbour

$777 Million

Merger with Yellowstone Acquisition Company Counsel to Sky Harbour

$777 Million

WeWork's De-SPAC Merger with BowX Acquisition Corp. Counsel to SoftBank

$9 Billion

WeWork's Merger with BowX Acquisition Corp. Counsel to SoftBank

$9 Billion

WeWork's Merger with BowX Acquisition Corp. Counsel to SoftBank

$9 Billion

SoFi's De-SPAC Merger with Social Capital Hedosophia Holdings Corp. V Counsel to SoftBank

$8.65 Billion

SoFi's De-SPAC Merger with Social Capital Hedosophia Holdings Corp. V Counsel to SoftBank

$8.65 Billion

SoFi's De-SPAC Merger with Social Capital Hedosophia Holdings Corp. V Counsel to SoftBank

$8.65 Billion

Sale of Majority Stake in SB Energy India Counsel to SoftBank

$3.5 Billion

Sale of Majority Stake in SB Energy India Counsel to SoftBank

$3.5 Billion

Sale of Majority Stake in SB Energy India Counsel to SoftBank

$3.5 Billion

Acquisition of 40% Stake in AutoStore Counsel to SoftBank

$2.8 Billion

Acquisition of 40% Stake in AutoStore Counsel to SoftBank

$2.8 Billion

Sale of SB Energy Holdings Counsel to SoftBank

$650 Million

Investment in CRM&BONUS Counsel to SoftBank

$280 Million

Investment in Extend Inc. Counsel to SoftBank

$260 Million

Investment in Zeta Counsel to SoftBank

$250 Million

Investment in Zeta Counsel to SoftBank

$250 Million

Investment in Forto Counsel to SoftBank

$240 Million

Investment in Forto Counsel to SoftBank

$240 Million

Investment in Eightfold AI Counsel to SoftBank

$220 Million

Investment in MadeiraMadeira Counsel to SoftBank

$190 Million

Investment in MadeiraMadeira Counsel to SoftBank

$190 Million

Investment in Grupo Bursátil Mexicano (GBM) Counsel to SoftBank

$150 Million

Investment in Pismo Counsel to SoftBank

$108 Million

Investment in Pismo Counsel to SoftBank

$108 Million

Investment in Pismo Counsel to SoftBank

$108 Million

Investment in Mmmhmm Counsel to SoftBank

$100 Million

Investment in Mmmhmm Counsel to SoftBank

$100 Million

Investment in Descomplica Counsel to SoftBank

$83 Million

Investment in GAIA Counsel to SoftBank

$50 Million

Investment in OneWeb Counsel to SoftBank

Investment in Contabilizei Counsel to Softbank

Joint Venture with WeWork Counsel to SoftBank

De-SPAC Merger Between Aries I Acquisition Corporation and Infinite Assets, Inc. Counsel to Solomon Partners, as Financial Advisor to Aries I Acquisition Corporation

$525 Million

Acquisition of Questar Pipeline Counsel to Southwest Gas Holdings

$2 Billion

Acquisition by Subsidiary Centuri Group of Riggs Distler & Company Counsel to Southwest Gas Holdings

$855 Million

Merger with Independence Realty Trust, Inc. Counsel to Steadfast Apartment REIT, Inc.

Zomedica Corp.'s Acquisition of Pulse Veterinary Technology Counsel to Stifel, Financial Advisor to Zomedica

$70.9 Million

Zomedica Corp.'s Acquisition of Pulse Veterinary Technology Counsel to Stifel, Financial Advisor to Zomedica

$70.9 Million

Acquisition of a Controlling Interest in Robert Family Holdings Counsel to Tinicum

Acquisition of the Remaining Shares of Cornershop Counsel to Uber

$1.4 Billion

Sale to Platinum Equity Counsel to Unical Aviation

Acquisition of Interactive Data Visualization, Inc. Counsel to Unity Technologies

Acquisition of OTO Counsel to Unity Technologies

Asset Carve-Out Acquisition from Weta Digital Counsel to Unity Technologies

$1.6 Billion

Sale to Corcentric Counsel to Vendorin

$90 Million

Merger of Confirmit with FocusVision Worldwide Counsel to Verdane Capital and its Porfolio Company Confirmit

$365 Million

Acquisition of IMEX Veterinary, LLC Counsel to Vimian Group AB

Sale of VNK Capital's Stake in Pharmathen to Partners Group Counsel to VNK Capital

Acquisition of MeMD Counsel to Walmart

Energy and Natural Resources

Financial Advisors

Financial Services

Healthcare and Life Sciences

Industrials

Private Equity

Real Estate

SPACs

Technology

Transportation

Other

Business & Professional Services

Consumer Products & Retail

Energy and Natural Resources

Financial Advisors

Financial Services

Healthcare and Life Sciences

Industrials

Private Equity

Real Estate

SPACs

Technology

Transportation

Acquisition of Spectra Audio Design Counsel to Paladin Technologies

Acquisition of VTI Security Counsel to Paladin Technologies

Acquisition of Commercial Security Integration Counsel to Paladin Technologies

But the economy grew, equity markets rose, financing was available at low rates, and dealmakers proved resilient, driving M&A activity, despite some tapering off in Q4, to new heights that are widely predicted to continue well into 2022. In this alert, we review the M&A markets in 2021 and major trends that will impact deal making in 2022.

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Global Activity

M&A

Global Activity

In 2021, global M&A volumes reached $5.9 trillion in value – a 64% increase compared to 2020 and the strongest annual period since Refinitiv began tracking M&A in 1980. Big ticket M&A grew, with deals valued at more than $10 billion tallying a 30% increase in aggregate value, according to Refinitiv. But the overall market was driven more by the 115% increase in aggregate value of deals between $1 billion and $5 billion. In addition, global cross-border activity grew by 68% to $2.1 trillion, with U.S. outbound activity accounting for about one-third of the value of cross-border transactions. Acquisitions of U.S. targets grew by 82% over 2020, according to Refinitiv, reaching $2.6 trillion. U.S. deal activity accounted for 44% of worldwide M&A activity.

Full Year Deal Value

# of Deals, Full Year

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Source: Refinitiv

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Source: Refinitiv

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Jordan Sweetnam SVP and General Manager eBay North America

We partnered with Sneaker Con to launch sneaker authentication on eBay last year because the team shared our passion for the category – with best-in-class capabilities to deliver what our customers want most. The response to our authentication offering has been overwhelming, and this acquisition allows us to continue to transform eBay and bring a higher level of trust and confidence to every transaction.

eBay

Morrison & Foerster advised eBay in connection with its acquisition of Sneaker Con Digital, a leading sneaker authenticator with operations in the U.S., UK, Canada, Australia, and Germany. The acquisition is an extension of the ongoing collaboration between eBay and Sneaker Con, which has been critical to powering eBay’s Authenticity Guarantee. The service, which eBay launched in October 2020, offers full vetting and verification of select sneakers bought on the marketplace by a team of Sneaker Con’s industry experts. Authenticity Guarantee has significantly changed the way people buy and sell sneakers on eBay, and the acquisition of Sneaker Con’s authentication business will offer customers added confidence in the purchase of high-value items.

Alborz Mahdavi CEO and Founder Protomer Technologies

“We are excited to join Lilly, a leader in diabetes therapies, and advance our science with their support to better serve the needs of patients. This transaction validates our team's accomplishments, and we look forward to continuing our important work together with Lilly.”

Protomer Technologies

Morrison & Foerster advised Protomer Technologies, a private biotech company, in connection with the company's sale to Eli Lilly and Company (NYSE: LLY). The potential value of the transaction is over $1 billion with successful achievement of future development and commercial milestones. Lilly previously led an equity investment in Protomer alongside the JDRF T1D Fund.

In this discussion, we review the M&A markets in 2021 and major trends that will impact deal making in 2022.

Click to explore each section

Global Activity

Private Equity

DeSPAC Boom

Tech Activity

Global Activity

DeSPAC Boom

Tech Activity

Private Equity

DeSPAC Boom

Deal activity, particularly in the U.S., was driven in part by special purpose acquisition companies (SPACs), which accounted for over $616 billion in transaction value in 2021, according to Dealogic. Over 30% of respondents from our 2021 Tech M&A Survey had participated in a tech M&A deal in the past 12 months that involved a SPAC, including 49% of North American respondents. After a SPAC IPO boom to start the year, activity backed off in the second half of 2021. But appetite remains strong, with just under half of our survey’s respondents considering transacting with a SPAC in 2022.

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An Upward Trajectory for Global SPAC M&A

Source: Dealogic

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Tech Activity

The technology sector once again dominated global M&A activity, with tech and non-tech companies around the world looking for growth in or through technology. In the U.S., tech accounted for 30% of total deal value, according to Dealogic. A large majority (78%) of respondents to our 2021 Tech M&A Survey predicted that tech M&A volumes would continue to increase into 2022. Respondents pointed to cloud technology as the tech sector with the most transactional opportunity.

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Private Equity

Private equity continued its acquisition spree, accounting for 27% of worldwide M&A activity by value, according to Dealogic. Similar to global M&A activity, technology dominated PE deal activity, accounting for 22% of PE deals in 2021, followed by telecom and real estate.

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Learn more about Morrison & Foerster’s Global M&A Practice.

Nine Trends for 2022

Antitrust Enforcement Intensifies Around the World

Antitrust scrutiny of M&A activity ramped up significantly in 2021, with the Biden White House implementing dramatic changes to domestic antitrust policy and U.S. and global agencies reacting with broader and more aggressive investigations and enforcement. In 2022, companies must be prepared to address potentially broader sets of issues and more aggressive regulators, and the risk of challenge, as well as the longer review processes that may result from the heightened scrutiny and generally increasing deal flow. Acquisition agreements will need to reflect these longer timelines and other potential issues and allocate attendant risks and costs.

Private Equity Surges in an Increasingly Competitive Market

Year of the DeSPAC

Evolving Diligence Processes: Impact of Rep and Warranty Insurance and PPP Loans

National Security Considerations Expand in Domestic and Cross-Border Deals

Acquisition Agreement Provisions Continue to Evolve in the Pandemic

Shareholder Activists Put Pressure on M&A Deals

Artificial Intelligence Poised for Successful 2022

Tax Changes May Affect M&A

Expanded Focus in the U.S. Regulatory Landscape.

In the U.S., more than a dozen federal agencies have begun implementing President Biden’s Executive Order calling for a “whole-of-government” approach to antitrust enforcement. As part of this initiative, federal agencies are moving away from analyzing antitrust issues under the economics-based consumer welfare standard, which had enjoyed bipartisan support since the early 1980s. As a result, rather than focusing primarily on a proposed deal’s likely impact on prices, output, and quality, agencies also are starting to consider potential effects on labor, small business, the environment, and social equity. We expect these new issues to play an increasingly prominent role in merger reviews and enforcement activity in 2022. The agencies’ focus on Big Tech, digital platforms, and nascent competition will also continue, although the DOJ and FTC have begun to train their sights on life sciences, agriculture, and real estate as well.

Rulemakings, Process, and the Expansion of HSR Requests Will Likely Slow Deal Reviews.

The FTC and DOJ have become more aggressive in using process to slow deal activity, which companies should anticipate as they consider deal timing in 2022. In particular:

The agencies suspended the practice of “early terminations” for most deals, meaning even routine transactions with no competitive impact must wait the statutory minimum of at least 30 days before closing. The FTC expanded the number and scope of HSR requests (including those to third parties) to encompass its new areas of interest, like labor markets, and is showing uncharacteristically little flexibility to parties seeking to narrow the scope of agency requests.

The FTC began to issue letters where it intends to keep investigations open past the relevant waiting period and warning parties to close at their own risk. The FTC rescinded the Vertical Merger Guidelines (which remain in place at the DOJ), and both agencies have begun the process to update the Horizontal and Vertical Merger Guidelines to reflect the expanded view of antitrust under the Biden Administration. These new guidelines could issue in 2022, although many observers expect extended internal debates that may cause delays. FTC leadership also asserted that it would begin to issue rules on a wide array of matters, including employee non-competes and digital platforms, which we expect will begin in earnest in 2022.

Legislative Activity.

On Capitol Hill, several bills have been circulating that would expand funding for enforcers and reshape the scope and nature of antitrust law. Among the proposals on the Hill are calls to shift the burden of proof to the parties for certain large deals, prohibit outright acquisitions by very large companies (those with over $100 billion in market capitalization), eliminate vertical integration for some digital platforms, require data portability and interoperability among platforms, and expand the FTC’s power to seek civil monetary penalties. Some of these bills now enjoy bipartisan support and could see movement in 2022.

In addition, some state legislatures are contemplating new laws that would create filing requirements for deals impacting those states. For instance, the New York State Senate passed a bill that would require notification and a 60-day waiting period for deals involving very large companies with a presence in the state (although the bill ultimately did not become law in 2021 it is again under consideration for 2022).

Outside the U.S.

The new, more expansive, approach to antitrust in the U.S. is being emulated or applauded by a number of jurisdictions around the world (some of which have long taken a broader view of antitrust). Competition authorities (for example, in the EU, UK, and Germany) continued to pursue cases on technology issues aggressively and have begun to use creative means to assert jurisdiction, with the UK’s Competition & Markets Authority interpreting its statutory tests liberally to assert jurisdiction over deals (particularly where national security interests may be at stake) and the EU encouraging national authorities to refer to it non-EU wide deals of interest, as was the case with Illumina/Grail. In addition, the Digital Markets Act and Digital Services Act, which set rules for digital platform “gatekeepers,” both moved toward implementation, with many people anticipating that they will take effect in 2022 or 2023.

Private Equity Surges in an Increasingly Competitive Market

The record M&A growth in 2021 was even more pronounced for private equity funds. With record amounts of dry powder available and low interest rates, 2022 shows little evidence of a slowdown, and PE firms must continue to adapt to a world where increased competition for deals, speed, certainty, and sky-high valuations rule the day.

Selective Participation in Processes.

As the number of potential buyers for acquisition targets increases, PE funds have become, and likely will continue to be, more selective in how much time they invest in auction processes. Given the seller power in the market, and the number of potential bidders, a fund must have full conviction in the target in order to invest the significant time and resources needed in a process that is often highly competitive. Accordingly, many PE funds are passing early on opportunities where conviction is lacking, but running extremely hard within, or even trying to preempt, processes for opportunities where they do have conviction. Investment bankers have also recognized this trend and are increasingly limiting their auction processes to a smaller group of potential bidders that are most likely to have conviction, creating a competitive process dynamic that any participant in the auction must be “in it to win it.”

Longer-Term Flexibility.

Warehousing investments for newly raised funds and raising continuation fund vehicles for existing investments have become more common as funds seek to manage market conditions requiring speed to closing, high multiples, and potentially longer hold periods. In certain transactions, PE funds can also use these strategies as a marketing tool—particularly in the middle market—where rollover sellers or management teams may value a longer-term approach from their PE buyer. As such, a trend that started to provide greater flexibility on the back end of a fund’s investment strategy by facilitating longer hold periods can also provide flexibility on the front end of that investment strategy as well.

Buy and Build.

In response to these competitive dynamics, PE funds continue to devote significant resources to buy-and-build strategies, whether through an aggressive approach to add-on acquisitions or a roll-up strategy of multiple smaller players that can collectively generate meaningful scale. Such strategies often present opportunities to gain some valuation multiple arbitrage on the overall platform or simply transact in less competitive proprietary or un-banked processes.

“Public Company-Style” Deals.

Rep and warranty insurance (RWI) has been the norm for PE buyers for over a decade, and is now the nearly universal expectation in every PE-backed transaction over the minimum deal size required to obtain RWI coverage (which amount continues to decline). Moreover, in order to gain an edge in this increasingly competitive landscape, PE sponsors increasingly are eschewing the customary limited indemnification provisions that supplement RWI coverage and are proposing (or sellers are requiring) “public company-style” deals with no recourse to sellers at all. While this trend has been true in larger deals over the past few years, the growth and pace of M&A activity among PE firms over the last year has accelerated the prevalence of “no indemnity” deals in the middle and even lower-middle market. While a “no indemnity” construct can expedite contract negotiation, it also puts additional pressure on due diligence that increasingly needs to be completed on a very compressed timeframe, driven by the competitive dynamics that drove the approach to indemnification in the first place. In 2021, these dynamics resulted in a steady increase in premium pricing by RWI underwriters and a more rigid approach by underwriters to their own due diligence process and exclusions from coverage in their policies. PE funds will need to remain prepared to manage this “push and pull” with RWI underwriters to ensure appropriate risk protection is available in their transactions. And while it remains to be seen if price increases will continue throughout 2022, PE funds should likely brace themselves for the continued need to propose a “no indemnity” structure in order to win competitive processes, and accept higher premiums as yet another rising cost of transactions.

Year of the DeSPAC

Earnouts.

While the use of earnouts has increased dramatically in the pandemic as a means of bridging valuation gaps or uncertainties related to the impact of the pandemic, PE firms are also increasingly using earnouts to solve for high (possibly exorbitantly high) valuation expectations of sellers. As prices continue to rise, earnouts can be a useful tool for a PE fund to deliver an above-market valuation but maintain some degree of protection at the top end of that valuation.

A more general review of the outlook for PE globally is provided in our MoFo Global PE Trends 2021 and Outlook for 2022.

Antitrust Enforcement Intensifies Around the World

Year of the DeSPAC

If 2020 was the year of the SPAC, then 2021 was the year of the deSPAC. With 269 deSPAC transactions closed in 2021 for a total deal value of approximately $600 billion, deSPAC transactions helped fuel the record-breaking M&A activity. As the trends highlighted below demonstrate, 2021 was a year marked both by significant challenges and evolution in the SPAC market, many of which seem destined to continue well into 2022 as the number of SPACs, and competition for deals, increases.

A More Challenging Environment.

From the SEC pronouncements on SPAC accounting, to increased stockholder litigation risk, to a tightening of the PIPE market and record-high stockholder redemption rates, the surge in deals in 2021 happened despite a challenging environment for SPACs. Some high-profile deals fell victim, as we saw transactions involving Wynn and Topps, to name just a few, abandoned. Yet, despite an evolving regulatory, financial, and legal landscape, SPACs showed real resilience and adaptability in response to those challenges. The regulatory landscape will continue to evolve in 2022, with several pending legislative proposals aimed at SPACs (including their flexibility in using financial projections in a deSPAC transaction relative to other companies in IPOs). Moreover, the recent Multiplan decision (discussed below) and the SEC’s increasing interest in disclosure of conflicts of interest, among other things, suggests that the legal implication of perceived conflicts and other potential issues involving SPACs will continue to play themselves out in 2022.

Flight to Quality.

The number of SPACs in the market, coupled with some underperformance of post-deSPAC businesses, meant that we saw a focus on quality in the latter half of 2021. PIPE investors in particular became more selective, and focused on a trifecta of quality: quality sponsors, quality targets, and quality processes.

Focus on Due Diligence.

The focus on quality of process was most visible when it came to timing and diligence. The average timeline to signing and marketing a deSPAC was extended, with a heavier emphasis on quality financial, business and legal due diligence.

Pressure on Sponsor Economics.

As targets became more sophisticated and the market more competitive, we saw sponsors having to put their economics at risk in various ways, from sponsor earn-ins, expense caps and forfeitures based on redemptions, to transfers of founder stock and other sweeteners for PIPE investors. Sponsors with the ability to cut a check to backstop redemptions or the PIPE also gained an advantage in a challenging PIPE market.

Evolving Diligence Processes: Impact of Rep and Warranty Insurance and PPP Loans

Evolution of the PIPE Market.

PIPE terms became much more structured and bespoke in the latter half of 2021, with a combination of features targeted at providing PIPE investors with more downside protection, more upside, or some combination of both. SPACs looking to provide deal certainty needed to demonstrate creativity and flexibility in addressing the PIPE market and the trend toward higher redemptions.

PIPE investors in particular became more selective, and focused on a trifecta of quality: quality sponsors, quality targets, and quality processes.

Private Equity Surges in an Increasingly Competitive Market

Evolving Diligence Processes: Impact of Rep and Warranty Insurance and PPP Loans

Diligence Approach Draws More Attention as More Strategic Buyers Opt for RWI.

Rep and warranty insurance, a favorite of sellers, has become an accepted product by private equity buyers generally and, increasingly, strategic buyers. Certain buyers, however, have remained skeptical, including in some cases because the diligence processes required to obtain a clean RWI policy may not conform to the buyer’s historical approach, particularly if the buyer customarily has taken a relatively “light touch” on diligence. Such buyers, however, are increasingly finding, either for their own risk management or because of competition for quality targets, that they might be better off obtaining RWI from an insurer rather than negotiating a customary escrow/indemnity arrangement with the target company’s sellers. While the process for obtaining RWI has evolved over the years to reduce disruption to the overall deal process, a minimum level of diligence is required. Otherwise, the policy is likely to contain exclusions based on insufficient diligence; those exclusions can often be removed after binding the policy if further diligence is done, but at the expense of efficiency in the deal process. Such minimum diligence standards generally include a thorough review of diligence materials in all functional areas (not just legal matters), and increasingly require a quality of earnings analysis. Most importantly, such diligence findings should be memorialized in diligence reports that are then shared with the underwriters to demonstrate an organized and thorough approach to diligence.

Diligence Issues of Focus for RWI.

Areas of heightened scrutiny for RWI underwriters include:

privacy/data security environmental matters regulatory matters that may impact the business compliance with COVID-19 rules, together with COVID-19’s overall impact on the business

Many insurers require exceptions for these areas. With respect to cybersecurity, in particular, many underwriters will only insure matters to the extent there is a primary cyber (or cyber tail) policy that acts as the first line of coverage, but securing any coverage at all requires a robust diligence process.

Logistical Constraints as M&A Surges.

As 2021 drew to a close, RWI sometimes proved hard to get, or at least more expensive, even with proper diligence procedures. RWI popularity is increasing just as deal volume is climbing, and demand is outpacing supply. Insurers can be more selective, and even then their teams are stretched and may take additional time to get to another deal. Insurers also are getting more history on claims, which in some cases has resulted in higher premiums. Some of the backlog and logistical constraints may ease as we move into a new year, but buyers should be prepared to discuss terms with the underwriters.

While Many Payroll Protection Loans Have Been Forgiven, Risks Still Exist .

Over the course of 2021, many of the PPP loans obtained in 2020 and 2021 have been forgiven, significantly lessening the need to address the treatment of such loans in definitive documents (such as by the establishment of an escrow account for the amount of the PPP loan pending forgiveness). However, forgiveness is not necessarily the endpoint of the analysis. If the SBA were to evaluate a PPP loan application or PPP forgiveness application and find misstatements that would render the loan or forgiveness ineligible, the buyer could become responsible for the repayment of such amounts (plus penalties). As such, buyers sometimes ask, despite forgiveness of PPP loans, the seller to give representations regarding the accuracy of the loan and forgiveness applications submitted and may ask for longer survival periods in light of the long potential statutes of limitations on such claims.

National Security Considerations Expand in Domestic and Cross-Border Deals

RWI popularity is increasing just as deal volume is climbing, and demand is outpacing supply.

Year of the DeSPAC

National Security Considerations Expand in Domestic and Cross-Border Deals

Increased Scrutiny of Cross-Border Deals in the U.S. and Around the World.

The trend toward increasing regulatory scrutiny of foreign direct investment continued during 2021, with new regimes established and existing regimes expanded, including in the UK, Japan, China, Australia, and various EU member states. For example, the UK’s new National Security and Investment Act (NSIA), which kicked in formally on January 4 of this year, is far broader than the country’s prior rules and features mandatory notice requirements with attendant penalties for failing to file. Some of these new rules can implicate transactions that involve buyers and sellers from the same country if, for example, one or both of the parties has a presence in another country. As a result, parties to transactions across numerous sectors, even those involving only parties from the same country, must evaluate the potential implications posed by any relevant global foreign direct investment regimes.

CFIUS Continues to Focus on Investments in Sensitive Sectors.

In 2021, the U.S. Committee on Foreign Investment in the United States (CFIUS) continued to exhibit its willingness to assert itself in transactions where it perceives a risk to U.S. national security, even where there is a very limited nexus to an actual business in the U.S. For example, in March 2021, a Chinese private equity firm agreed to acquire Magnachip, a semiconductor company founded and headquartered in South Korea, in a $1.4 billion deal. Magnachip is organized and publicly traded in the U.S., but its activities appear limited to owning entities that conduct business outside the U.S., and it has very little, if any, operations within the U.S. and does not have any employees, tangible assets, or IT systems in the U.S. CFIUS nonetheless indicated it would likely block the transaction, likely relying on Magnachip’s NYSE listing and incorporation in Delaware to assert jurisdiction. In December 2021, the parties announced they mutually terminated the transaction as a result of CFIUS’s scrutiny, as described in our client alerts: CFIUS Prepares to Block Semiconductor Sale to Chinese Entity and CFIUS’s Expanding Jurisdiction in the Magnachip Acquisition. Companies operating overseas with even a limited nexus to the U.S. need to undertake CFIUS due diligence before engaging in a transaction in sectors – like semiconductors – that implicate the U.S. government’s core national security concerns.

Non-Notified Transaction Outreach Ramps Up for CFIUS.

CFIUS has been building up its non‑notified team to search for transactions that may pose national security risks but were not voluntarily notified to CFIUS. We discussed this point in our recent article on the 2020 CFIUS Annual report, which indicated that, in 2020, CFIUS evaluated 117 non-notified transactions and requested a filing for 17 of those transactions. The number of non-notified transactions reviewed formally and informally by CFIUS in 2021 (which has not yet been released by CFIUS) will likely be higher still. CFIUS’s increased efforts to identify and scrutinize non-notified transactions indicate that parties to transactions that are potentially covered or otherwise of interest to CFIUS should consider the risks of outreach from CFIUS and the impact they may have on the transaction (e.g., closing delays and costs).

Evolving Diligence Processes: Impact of Rep and Warranty Insurance and PPP Loans

Acquisition Agreement Provisions Continue to Evolve in the Pandemic

parties to transactions across numerous sectors, even those involving only parties from the same country, must evaluate... relevant global foreign direct investment regimes.

Acquisition Agreement Provisions Continue to Evolve in the Pandemic

COVID-19 and Interim Operating Covenants.

At the onset of the pandemic, companies focused on material adverse effect clauses. Some buyers attempted to assert MAE termination rights but were rebuffed by the high bar applied by courts. Sellers often requested, and parties often agreed to, to some negotiated extent, a carveout from the MAE for various COVID-related measures. The previous “boilerplate” covenant by target companies to operate in the ordinary course between signing and closing also drew close attention. For example, the Delaware Supreme Court recently confirmed a buyer’s right to terminate an acquisition agreement because the target company failed to comply with a covenant that required it to conduct its business “only in the ordinary course of business consistent with past practice in all material respects,” but the target company, in response to the pandemic, implemented “extraordinary” changes, even though the court noted that those changes may have been “warranted” by the pandemic and “reasonable” from a financial and practical standpoint. Other courts may be more amenable to the argument that otherwise extraordinary actions may be an “ordinary” response to extraordinary circumstances. At the beginning of the pandemic, sellers negotiated for express carveouts to the interim operating covenants to allow them to take actions in response to the pandemic. Many buyers seemed willing to accept some variation on such a carveout as the price for the agreement. As the pandemic continued throughout 2021, however, the negotiation between buyers and sellers around that carveout has evolved. Increasingly, we are seeing buyers, particularly strategic, serial acquirers, attempt to resist broad pandemic-related carveouts from the ordinary course of business. The rationale for this change of negotiation position sometimes is that the pandemic has now dragged on for almost two years, and actions taken by the sellers in response to the pandemic should by now be accounted for in the company’s ordinary course of business operations. Sellers often have resisted such limits, given the difficulty of predicting what steps may be required, or prudent, in light of the pandemic and the potential for further changes. Parties also have had to consider how to accommodate actions required by law, including recommendations or other discretionary steps, which may vary jurisdiction to jurisdiction.

Omicron and Beyond . . .

With the arrival of the Omicron variant, the interim operating covenant related to the conduct of the business in the ordinary course may evolve further still. In industries particularly vulnerable to pandemic-related disruptions (travel and leisure, healthcare and education, transportation and logistics, for example), sellers may look again to a broad carveout to allow the company to react to pandemic-related disruptions between signing and closing. Additionally, rather than waiting to see whether federal, state, or local officials impose fresh pandemic-related restrictions during this Omicron wave, sellers may seek flexibility to deviate from the company’s ordinary course of business to address the pandemic risk to the company’s business, even if not directly in response to governmental directives, laws, or regulations.

See, for example, Snow Phipps Group, LLC v. KCake Acquisition, Inc., Del. Ch. April 30, 2021, and AB Stable VIII LLC v. Maps Hotels and Resorts, Del. Ch., Nov. 30, 2020, aff’d Del. Supreme, December 8, 2021.

National Security Considerations Expand in Domestic and Cross-Border Deals

Shareholder Activists Put Pressure on M&A Deals

AB Stable VIII LLC v. Maps Hotels and Resorts, Del. Ch., Nov. 30, 2020, aff’d Del. Supreme, December 8, 2021.

See, for example, Cineplex v. Cineworld, Ontario Super. Court of Justice, December 14, 2021.

Shareholder Activists Put Pressure on M&A Deals

Concentration Shift in M&A Campaign Objectives.

Historically, the largest percentage of M&A-related activist campaigns focused on pressuring the target company to sell itself. However, during the first three quarters of 2021, the majority of M&A-related campaigns instead focused on challenging announced deals – either on the target side through traditional “bumpitrage” demands for a higher price or on the buy side by opposing a proposed acquisition. Notable examples include Eminence Capital’s opposition to Pluralsight’s proposed sale to Vista Equity, in which it argued the price was too low, leading to an increase in price that (while still opposed by Eminence Capital) was accepted by a majority of shareholders, as well as Petra Capital Management’s challenge to the proposed merger of GS Retail and GS Shop.

SPAC Activism.

2021 continued to see a significant number of private companies going public through deSPAC transactions by merging with a SPAC. Activists have started focusing on these transactions, particularly through engaging in short activism campaigns – i.e., publicly denouncing the valuation or target company in an effort to drive down the stock price – in many cases shortly after the deSPAC transaction closes. Shareholders also began bringing litigation against SPACs and their directors. For example, after Lordstown Motors went public through a deSPAC merger, Hindenburg Research shorted its stock and published a report that accused the company of misleading investors and faking orders. Similarly, after MultiPlan, Inc. went public through a deSPAC merger, Muddy Waters Research shorted its stock and published a report stating that the company was losing its largest customer and possibly 35% of its revenue.

See https://www.lazard.com/media/451867/lazards-q3-2021-review-of-shareholder-activism.pdf

At the beginning of 2022, the Delaware Chancery Court allowed litigation to proceed against a SPAC based on allegedly misleading disclosures that impaired the right of the shareholders to redeem their shares, applying the strict entire fairness standard of review given the unique benefits of the deSPAC merger, including the opportunity to redeem, to the sponsor, as a controller of the SPAC, and the conflicts faced by a majority of the SPAC’s board. In re Multiplan Stockholders Litigation, Del. Ch., Jan. 3, 2022.

Acquisition Agreement Provisions Continue to Evolve in the Pandemic

Artificial Intelligence Poised for Successful 2022

Any pause in shareholder activism that may have occurred because of the pandemic has largely been eliminated. Overall, during the first three quarters of 2021, shareholder activism was level compared to 2020, though down slightly from pre-pandemic averages, and activists continued to focus on M&A-related theses, which represented 45% of all campaign objectives, generally in line with prior years. 2021 also saw:

Adoption of Universal Proxy Card Rules.

The SEC adopted amendments to the proxy rules to require the use of a universal proxy card in proxy contests for most SEC-registered companies, as detailed in our recent client alert, U.S. SEC Adopts Universal Proxy Card Rules. The final rules, among other things, mandate that the universal proxy card include the names of both company and dissident nominees, require each side in a proxy contest to refer shareholders to the other party’s proxy statement for information about the other party’s nominees, and require dissidents to solicit the holders of at least 67% of the voting power of the shares entitled to vote at the meeting. All of the rule changes will become effective on January 31, 2022. However, the rules are subject to a transition period and therefore begin to apply for any shareholder meetings held after August 31, 2022. The use of a universal proxy card may have a significant effect on how shareholders choose to use their votes in a contested election.

Questioning Shareholder Rights Plans (Poison Pills) in a Hypothetical Activist Setting.

The Delaware Chancery Court invalidated a shareholder rights plan adopted by The Williams Companies at the beginning of the pandemic. The court noted the board’s apparent concern with potential shareholder activism and the plan’s 5% trigger, broad acting in concert provision, and other terms, ultimately finding that the agreement was disproportionate to the threat posed to the company. The court also noted that even if the short-term focus of activists or distraction caused to management by activists might be a cognizable threat against which the company could act to protect the company (a question not resolved by the court), they were not such a threat when they were merely hypothetical concerns and no specific activist threat was present.

Enforcement of Advance Notice Bylaws.

The Delaware Court of Chancery upheld the CytoDyn board’s rejection of a dissident group’s nomination notice for failure to comply with the information requirements of the company’s advance notice bylaw. One day prior to the nomination notice deadline, a group of stockholders submitted a nomination notice to the company. This nomination notice, however, failed to disclose, among other things, information about those supporting the proxy contest, which was required by CytoDyn’s advance notice bylaw. The board rejected the nomination notice as deficient and did not give the dissidents a chance to cure the deficiency. The court upheld the board’s enforcement of the advance notice bylaw, finding that the board’s action did not reflect “manipulative conduct.”

The Williams Companies Stockholder Lit., Del. Ch. Feb. 26, 2021, aff’d Del. Supreme Nov. 3, 2021.

Rosenbaum v. CytoDyn Inc., Del. Ch. Oct. 13, 2021.

Artificial Intelligence Poised for Successful 2022

Investments and Exits.

The artificial intelligence industry is poised for a successful 2022, as venture investment in AI companies increased significantly in 2021 and exit values for venture-backed AI companies in 2021 substantially outpaced such investment. According to PitchBook, AI companies raised over $83.7 billion through Q3 2021 in venture financings (implying $111.6 billion on an annualized basis if that pace continued through year end), representing an over 100% increase in the amount raised versus 2020. Such investments included a number of large unicorn rounds as deal sizes and valuations increased significantly as well, including rounds for MoFo-advised emerging companies such as FLYR Labs, a pioneer of the data and AI-driven Revenue Operating System for airlines, travel, and transportation, and investors such as SoftBank Vision Fund 2’s lead investment in Eightfold AI’s Series E round. While that increase in venture financings was impressive, this amount was far exceeded by exits for venture-backed AI companies in 2021, with such companies producing over $166 billion in value through IPOs and M&A through the end of Q3 2021 according to PitchBook ($221.3 billion on an annualized basis if that pace continued through year end). This amount more than triples 2020’s disclosed deal value and, in fact, exceeds aggregate venture investment in AI companies tracked by PitchBook from 2018 to 2020. Although most of that exit activity by count has been through M&A, the lion’s share by value has been through IPOs. Much of that value is concentrated in deals with a value of over $1 billion, as there were over 26 such deals in that period that accounted for over $153 billion in value, including our client Divvy’s sale to Bill.com in a stock and cash transaction valued at $2.5 billion.

AI-Related Issues in M&A

When considering the acquisition of an AI company, buyers should consider (in addition to all the other issues that usually come up in M&A) a number of specific issues, including:

(1) whether or not the target company has an adequate right in core data assets (e.g., the rights to collect, process, share, and use the data that it uses), including whether the target company had appropriate rights to the data that it used as training data to develop its AI algorithms; (2) the cybersecurity and privacy concerns that may accompany such technology, particularly as laws such as California’s Consumer Privacy Act and other privacy laws are implemented;

Tax Changes May Affect M&A

While that increase in [AI] venture financings was impressive, this amount was far exceeded by exits for venture-backed AI companies in 2021

Shareholder Activists Put Pressure on M&A Deals

Tax Changes May Affect M&A

As 2021 drew to a close, Congress was working to pass the Build Back Better Act (the “BBBA”) sometime in early 2022. The current draft does not include the proposed changes to the capital gains rate and the treatment of carried interest that captured attention earlier in the year, but the legislative text continues to be negotiated, and some provisions may yet be modified, added, or dropped. If enacted in its current form, the BBBA would introduce a number of new revenue-raising tax measures that could affect M&A by corporate taxpayers, including:

Excise Tax on Corporate Stock Buybacks.

The BBBA would impose a 1% excise tax on stock buybacks by certain publicly traded U.S. corporations (and, in some cases, U.S. subsidiaries of non-U.S. corporations). The excise tax would apply to the value of all stock repurchases made by a corporation and certain of its affiliates in a given year, subject to adjustments and exceptions. Specifically, the excise tax would not apply to the extent a corporation also issues stock in the same year, including stock issued in connection with an acquisition or to employees as compensation or pursuant to option exercises. This means that corporations will still be able to repurchase shares to offset the dilutive effect of an acquisition or their equity compensation programs without incurring the excise tax. In addition, the excise tax would not apply to share repurchases by RICs or REITs, or corporations whose buybacks for the year are less than $1,000,000. Critically, the excise tax would apply to stock buybacks beginning after December 31, 2021, regardless of when they were authorized.

New Corporate Interest Deduction Limitations.

The BBBA would further limit interest deductions for certain U.S. corporations that are members of multinational groups, which could affect the costs of leveraged acquisitions, as well as the costs of the underlying target, or acquirer, business. Under current law, a business’s ability to deduct interest expense generally is limited to 30% of EBIT for tax years beginning after January 1, 2022. The BBBA would further limit interest deductions of U.S. corporations that are members of a multinational group and have an average net interest expense (determined over a three-year period) in excess of $12 million. The limitation is an “allowable percentage” of 110% of the domestic corporation’s excess interest expense, with the “allowable percentage” being what the corporation’s share of the group’s overall net interest expense would be if it bore the same relationship as the corporation’s share of the group’s overall EBITDA.

Alternative Minimum Tax on Large Corporations.

Among the new corporate tax provisions of the BBBA is a proposed 15% minimum tax on large corporations. The minimum tax generally would apply to U.S. corporations (other than RICs, REITs, or S corporations) that have average “adjusted financial statement income” (i.e., book income) in excess of $1 billion over a three-year period. The 15% minimum tax is reduced by any regular corporate income tax otherwise payable by the corporation for such year, and special rules apply for U.S. corporations owned by non-U.S. parent companies.

Surcharge on High-Income Individuals, Estates, and Trusts.

The BBBA also introduces a surcharge on individuals with “modified adjusted gross income” (“MAGI”) that exceeds $10 million. This provision would apply to high-income individuals who are shareholders of a target company and receive stock or options in a merger or acquisition. MAGI equals an individual’s usual adjusted gross income reduced further by any deductions allowable for investment interest. The provision imposes a 5% tax on MAGI over $10 million and a further 3% tax on MAGI over $25 million (or $12.5 million for married individuals filing jointly). The provision was originally intended to take effect on January 1, 2022, but the delay in passing the BBBA until early 2022 could alter that effective date.

Artificial Intelligence Poised for Successful 2022

Year of the DeSPAC

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(3) the target company’s product liability risk profile and what steps the target company has taken to mitigate that risk; and (4) if the target company is using publicly available algorithms and software in their system, the novelty of their IP, which often comes from how the company is training its AI models and the uniqueness of the company’s training data.

Iconix Brand Group's Sale to Lancer Capital, LLC Counsel to Ducera Partners, Financial Advisor to Iconix

$288 Million

Acquisition of Direct Technologies, Inc. Counsel to Doxim

Strategic Growth Investment in Guided Practice Solutions ("GPS Dental") Counsel to Main Post Partners

Investment into PHC Holdings Corporation Counsel to L Catterton

$182 Million

Investment in Registrar Corp. Counsel to Paine Schwartz Partners

Sale of GPS Insight Counsel to FieldAware

Investment into PHC Holdings Corporation Counsel to L Catterton

$182 Million

Investment in Grupo Bursátil Mexicano (GBM) Counsel to SoftBank

$150 Million

Investment in Meesho Counsel to SoftBank

$300 Million

Disposal of 100% of a Cosmetics Packaging Company to a Special Purpose Vehicle Counsel to Prax Capital

$60 Million

Strategic Majority Investment in the Merger of EverTrue and ThankView Counsel to Rubicon Technology Partners

Investment into Ci FLAVORS Counsel to L Catterton

Public Takeover by Apeiron Counsel to DEAG

60 Million

$288 Million

technology sector dominates global activity

30%

Private Equity Accounts for much of M&A activity

27%

Acquisition of Software from Tangent Labs Counsel to Autodesk

Acquisition of Faredirect Counsel to Flyr

Sale of GPS Insight Counsel to FieldAware

Sale to Microsoft Counsel to Peer5

Sale to Eli Lilly and Company Counsel to Protomer Technologies

$1 Billion

Acquisition of Spectra Audio Design Counsel to Paladin Technologies

Acquisition of VTI Security Counsel to Paladin Technologies

Investment in CRM&BONUS Counsel to SoftBank

$280 Million

Investment in Extend Inc. Counsel to SoftBank

$260 Million

Investment in Zeta Counsel to SoftBank

$250 Million

Investment in Forto Counsel to SoftBank

$240 Million

Investment in Eightfold AI Counsel to SoftBank

$220 Million

Investment in GAIA Counsel to SoftBank

$50 Million

Investment in OneWeb Counsel to SoftBank

Joint Venture with WeWork Counsel to SoftBank

Purchase of Assets from Mya Systems Counsel to StepStone GmbH, a Subsidiary of Axel Springer

Acquisition of VisualLive Counsel to Unity Technologies

Acquisition of Parsec Counsel to Unity Technologies

$320 Million

Sale to Corcentric Counsel to Vendorin

$90 Million

Acquisition of SyncSketch Counsel to Unity Technologies

Acquisition of a Controlling Interest in Robert Family Holdings Counsel to Tinicum

Cornerstone OnDemand's Sale to a Subsidiary of Clearlake Capital Group Counsel to Qatalyst Partners and Centerview Partners, Financial Advisor to Cornerstone OnDemand

$7 Billion

Acquisition of U-POL Holdings Counsel to Axalta

428 Million

Fortis Solutions' Acquisition of Total Label USA, LLC Counsel to Main Post Partners and Fortis Solutions Group

De-SPAC Merger Between Aries I Acquisition Corporation and Infinite Assets, Inc. Counsel to Solomon Partners, as Financial Advisor to Aries I Acquisition Corporation

$525 Million

De-SPAC Merger with Yellowstone Acquisition Company Counsel to Sky Harbour

$777 Million

Sale of SB Energy Holdings Counsel to SoftBank

$650 Million

Sale of SB Energy Holdings Counsel to SoftBank

$650 Million

Investment in Afya Counsel to SoftBank

$150 Million

Equity Investment in Rakuten Counsel to Tencent Holdings

$2.2 Billion

Sale to Bill.com Counsel to Divvy

$2.5 Billion

Acquisition of xCheck Counsel to Flyr

Acquisition of Commercial Security Integration Counsel to Paladin Technologies

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Trends for 2022

M&A

M&A in 2021 and Trends for 2022

Deal terms continued to evolve in response to these and other developments. But the economy grew, equity markets rose, financing was available at low rates, and dealmakers proved resilient, driving M&A activity, despite some tapering off in Q4, to new heights that are widely predicted to continue well into 2022. In this alert, we review the M&A markets in 2021 and major trends that will impact deal making in 2022

Global Activity

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Full Year Deal Value

# of Deals, Full Year

Global announced M&a

2011-2021

In addition, global cross-border activity grew by 68% to $2.1 trillion, with U.S. outbound activity accounting for about one-third of the value of cross-border transactions. In the U.S., acquisitions of U.S. targets grew by 82% over 2020, according to Refinitiv, reaching $2.6 trillion. U.S. deal activity accounted for 44% of overall worldwide M&A activity.

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