The Mergers & Acquisitions Review: USA

Overview of M&A activity

Following2 a turbulent 2020 for M&A, the first three quarters of 2021 put the year on track to set records in deal volume both globally and in the United States. In the third quarter of 2021 alone, 8,175 deals worth approximately US$1.6 trillion were announced globally, compared to US$1.1 trillion in the same period of the previous year. This was the highest level of activity in a single quarter since at least 2011, and more than half of all activity for the entire year 2013. In the United States, 2,702 deals totalling approximately US$685 billion and representing about 43 per cent of worldwide M&A activity were announced in the third quarter of 2021. In the early months of the year, many transactions were in industries that were more insulated from the covid-19 pandemic, such as technology and healthcare, but as the year progressed and general confidence in the economy improved, major deals were announced across a large number of industries, including many that have witnessed more significant pandemic impacts.

The high rate of activity can be attributed to a confluence of factors, including a rebounding global economy powered by pandemic-driven pent-up demand, coupled with gradually improving optimism as the United States and Europe made progress on covid-19 vaccine rollouts, as well as low borrowing costs as a result of near-zero interest rates, incentives to consummate transactions before potential tax reform, and acceleration of ongoing changes in the way people work, socialise, learn, shop, travel and dine, among many other things. Yet although dealmaking is booming, there are indications that the landscape for M&A could give way to more uncertain terrain going forward, as a result of changes that have the potential to make transactions more uncertain and more expensive, including changes in economic, political and business conditions driven by inflation, supply chain disruption, green energy initiatives, tax policy and government spending, as well as a new presidential administration coming into office in January 2021, with different priorities both at home and abroad.

One trend that has been top of mind for US practitioners is the more interventionist approach to enforcement of the US antitrust laws adopted by the Federal Trade Commission (FTC) and the Antitrust Division of the US Department of Justice (DOJ) (together, the agencies). The agencies have made clear that they view more aggressive antitrust enforcement as one way to provide a check on perceived power imbalances in the US economy, by promoting fair competition among participants.3 The FTC, currently chaired by Lina Khan, has adopted a number of procedural and substantive changes that have introduced greater uncertainty for merging parties, including suspending the agency's practice of granting early terminations;4 sending standard form pre-consummation warning letters advising merging parties that they act at their own peril in closing a transaction, which may remain subject to ongoing investigation and challenge by the agencies; and repealing the prior administration's vertical merger guidelines, with the intent to adopt guidelines that better reflect market realities. The DOJ has also been hard at work, suing to block the mega merger of Aon plc and Willis Towers Watson (which eventually led the parties to abandon the transaction) and filing a challenge to the Northeast Alliance partnership between two major US airlines. Separate from the enforcement environment, there are a number of legislative proposals pending in both houses of the US Congress that, if enacted, have the potential to reshape the doctrinal framework for antitrust analysis, and growing bipartisan support for a change to the antitrust laws has increased the likelihood of legislative change, although much uncertainty remains about just what that change ultimately may be.

Another recent trend that has been hard to miss is the explosion of special purpose acquisition companies (SPACs), which began to proliferate in 2020 and have continued their momentum into the current year. This boom was met with increasing attention from US regulators, in particular the US Securities and Exchange Commission (SEC) under newly appointed Chair Gary Gensler. Although the rate of SPAC initial public offerings (IPOs) is slowing, there are a large number of SPAC vehicles that have raised hundreds of millions of dollars through the IPO process but have yet to find a target, and have strong incentives to try to complete a deal before the time frame specified in their charter expires.

This chapter will first set out an overview of the legal framework applicable to M&A and describe recent developments in corporate law before discussing foreign involvement in M&A transactions. We will then discuss particularly active areas of M&A in 2021, as well as key trends that emerged over the course of the year. Finally, the chapter will discuss recent developments in key practice areas, including financing, employment law, tax law and competition law, before concluding with a discussion of the future outlook for M&A.

General introduction to the legal framework for M&A

The law of M&A in the United States comes from two principal sources: (1) state corporation law and (2) federal securities statutes (i.e., the Securities Act of 1933 and the Exchange Act of 1934). There are numerous other bodies of law that also relate to and inform M&A transactions, including contract law, tax law, antitrust and foreign investment law, and labour and employment law. Finally, the requirements of the main two US stock exchanges (the New York Stock Exchange (NYSE) and Nasdaq) applicable to listed companies are often implicated by M&A transactions.5

Within the patchwork of federal and state statutes and regulations that apply to M&A, corporate law is paramount, and is generally informed by the target company's jurisdiction of incorporation. Delaware is the dominant jurisdiction of incorporation in the US, with a long-standing statutory regime that is supplemented by a well-developed body of case law defining the rights and obligations of the various participants in M&A transactions. Corporate issues governed by Delaware (or other applicable state) law include the structure of the transaction, as well as the duties of the board of directors. State law claims are generally enforced in private actions that are led by class-action stockholder plaintiffs' lawyers and they remain a common feature of US M&A, if one that generally amounts to a mere nuisance in most arm's-length transactions.

Under well-established Delaware law, the default standard for review of directors' decisions is the business judgment rule, which protects decisions that are made by directors who have fulfilled their duties of care and loyalty.6 An enhanced level of scrutiny may apply in certain situations related to M&A decisions, including in the context of a sale of control (in which case, the board's decision-making process and actions may be analysed under the Revlon framework to assess whether the directors acted reasonably to maximise shareholder value)7 and the adoption of defensive measures in response to a threat to corporate control (in which case, the directors have the burden to establish that their process and conduct satisfied the two-prong Unocal test, which looks to the board's grounds for believing that a danger to corporate policy existed and the reasonableness of the defensive measure in response to the threat posed).8 Delaware's highest level of scrutiny – known as the 'entire fairness' standard – applies in situations where a majority of the board is either interested9 or non-independent,10 or in certain situations involving conflicted controlling shareholders.11 The entire fairness test requires directors to establish the fairness of the price and process of the transaction they approved.

The SEC, an agency housed within the federal executive branch, is responsible for the civil enforcement of the federal securities laws and for developing rules to implement them, with a general focus on regulating required disclosures and impermissible trading in the context of transactions. In certain situations, the federal securities laws also provide for private rights of action that are subject to limitations set by Congress. Various provisions of the securities laws, including those related to insider trading, reporting disclosure obligations and prohibitions on making material misstatements, apply generally, while others, including provisions related to the process of soliciting votes of the target shareholders in connection with approval of a transaction, are M&A-specific. Disputes arising out of the federal securities laws are generally adjudicated in US federal district courts in the first instance. In addition to the SEC, numerous other regulators and regulatory regimes are frequently encountered by participants in M&A transactions involving US companies, including the DOJ and the FTC, as noted above, as well as industry-focused regulators such as the Federal Communications Commission, which frequently plays a role in telecommunications deals, and the Federal Reserve, with oversight of bank transactions.

Developments in corporate and takeover law and their impact

Major topics in state corporate law include the duties of corporate directors in making decisions for the corporation as well as the statutory rights of various participants in M&A transactions. As we will discuss in this section, Delaware courts made important decisions in both of these realms in 2021, first in relation to a shareholder rights plan adopted by a board of directors acting in response to the instability of the covid-19 pandemic, and second in relation to the right of shareholders to demand access to the books and records of a corporation under Delaware statutory law.

i Shareholder rights plans


The shareholder rights plan, or 'poison pill,' remains a vital tool that boards of directors may employ to repel an unwanted or hostile takeover attempt. The shareholder rights plan consists of a dividend of special rights made to the shareholders of the corporation. If a shareholder, acting without the approval of the corporation's board of directors, amasses ownership in excess of a predetermined threshold (usually between 10 and 15 per cent), then the rights held by every other shareholder trigger and convert into the right to purchase the corporation's stock at a price substantially below the then-current market value. Additionally, many rights plans provide that the board of directors may instead choose to exchange one share of common stock for each right held by shareholders other than the shareholder who triggered the poison pill. In either case, the conversion or exchange results in a substantial dilution of the triggering shareholder, which provides a strong incentive for a potential acquiror to negotiate with the board up front, rather than suffer that fate in an unsolicited takeover.

Poison pills are a legitimate defensive device under Delaware law, having been upheld by the Delaware Supreme Court in 1985.13 Stockholder challenges to poison pills are analysed under the intermediate scrutiny test set forth in Unocal, which entails a two-part inquiry: (1) whether the board had reasonable grounds for identifying a threat to the corporate enterprise; and (2) whether the response was reasonable relative to the threat posed.

Although many companies have such plans 'on the shelf' and ready to be adopted promptly following a takeover threat, companies rarely have standing poison pills in effect these days. Instead, poison pills are generally adopted for a particular reason, including in response to an activist accumulation or hostile threat (or for reasons that may not be directly related to M&A, such as to protect net operating loss (NOL) carryforwards).14 Of the 100 poison pills adopted by US companies in 2020, 47 per cent were routine adoptions, without any particular threat being publicly identified, 26 per cent were NOL-protective pills, 15 per cent were in response to an activist investor or rapid stock accumulation, and 4 per cent were in response to a hostile offer.

The year 2020 saw a drastic increase in the rate of adoption of poison pills, a trend that began at the start of the pandemic as companies sought to ensure they were protected against opportunistic actors seeking to take advantage of volatile equity markets. In March 2020 alone, 21 poison pills were adopted by US companies, which was the highest number in any month since 1 January 2017 (when DPD began tracking this activity), and more than triple the previous most active month in January 2018, which saw seven adoptions.

The Williams Companies stockholder litigation

One company that adopted a shareholder rights plan at the outset of the covid-19 pandemic was The Williams Companies (Williams), a natural gas company whose board feared that activists would seize on its low stock price following the pandemic-driven market sell-off to take a sizable position in the company's stock.15 The rights plan unanimously adopted by the Williams board included a low, five per cent ownership trigger, an expansive definition of 'acting in concert,' and a narrow, limited exception for passive investors that exceed the ownership trigger16 – a set of provisions the Delaware Court of Chancery, when it ultimately considered the plan, labelled 'a more extreme combination of features than any pill previously evaluated'.17 The Williams board pointed to three justifications in support of the pill: (1) the desire to prevent stockholder activism during market uncertainty; (2) fear that potential activists might pursue short-term agendas; and (3) concern about rapid accumulation.18

The Court of Chancery permanently enjoined this rights plan under the second prong of Unocal, finding that the 'extreme, unprecedented collection of features' adopted by the Williams board 'created a response that was disproportionate to its stated hypothetical threat'.19 The court's conclusion hinged on its determination that the combination of features – the 5 per cent trigger, the acting in concert definition, and the passive investor exception – was not reasonable in relation to the board's stated objective; Williams did not decide whether the shareholder rights plan was preclusive or coercive. On appeal, the Court of Chancery's decision was unanimously upheld by the Delaware Supreme Court.20

According to the Williams Court, the combination of features at play in the shareholder rights plan 'increase[d] the range of Williams' nuclear missile range by a considerable distance beyond the ordinary poison pill'.21 The reasoning and outcome of the Williams decision thus confirm that shareholder rights plans are 'situationally specific defenses' that, if not tailored to clearly articulated threats to corporate objectives, are subject to challenge and potential invalidation.22 Nonetheless, shareholder rights plans that are appropriately drafted and developed on a detailed record in consultation with the company's legal and financial advisers remain a critical – and valid – tool available to corporate boards.

ii Books and records demands in M&A shareholder litigation

Section 220 of the DGCL permits shareholders to make a written demand to inspect the books and records of the corporation. In recent years, Section 220 has increasingly been used by activist investors to obtain material they believe will buttress their campaigns against target companies, and by plaintiffs to investigate potential wrongdoing related to proposed M&A activity. As a result, case law determining the boundaries of the rights to use this statutory mechanism has developed as well.

In 2017, for example, the Delaware Court of Chancery in Lavin v. West Corp confirmed that shareholders may use Section 220 of the DGCL to investigate suspected wrongdoing by a board of directors in connection with a sale of the company.23 The Lavin court further held that to prevail on such a request, the plaintiff need only prove that the request is reasonably related to the shareholder's interest as a shareholder.24 In the wake of Lavin, plaintiffs considering pursuing damages claims in connection with M&A transactions are increasingly using books-and-records demands to investigate the M&A sale process, and then later using that information to critique the fairness of the process.25 Activist investors have continued to do the same, as well, such as the lawsuit filed by an investor opposed to Occidental's announced acquisition of Anadarko Petroleum in 2020.

These trends have led the Delaware Court of Chancery to refine the law regarding when the Section 220 inspection right is – and is not – available. For example, in the Occidental case, the Delaware Court of Chancery stated that although the standard for inspection under Section 220 is the lowest burden of proof recognised by Delaware law, a plaintiff must still provide some evidence of wrongdoing, beyond mere disagreement with a business decision, to support a books-and-records demand. More generally, recent Delaware decisions have cautioned defendants against overly aggressive obstruction of Section 220 demands, even suggesting that in appropriate cases, fee shifting may be warranted.26

Foreign involvement in M&A transactions

In our globalised world, M&A activity often involves, in one way or another, countries around the world. One dimension of foreign involvement is the jurisdiction of the transaction counterparty – if the counterparty is a foreign company, then the parties may face additional complexities as a result of the deal being cross-border. Cross-border deals make up an important part of M&A volume – approximately US$1.3 trillion, or 35 per cent, of deals in 2020 (including four of the 10 largest deals), were cross-border. Canadian, French, German, Japanese and UK acquirors accounted for approximately 49 per cent of the volume of cross-border deals involving US targets, and acquirors from China, India and other emerging economies accounted for approximately 6 per cent of such targets.

In the United States, review of foreign investments is conducted by the Committee on Foreign Investment (CFIUS), which is a federal interagency group tasked with assessing foreign investments in US businesses and certain real estate transactions for national security implications. In 2020, CFIUS conducted a review of 187 notices,27 a decrease from the 231 notices reviewed in 2019.28 The scope of review of foreign investments has significantly expanded over the past 10 years, in particular following the passage of the Foreign Investment Risk Review Modernization Act (FIRRMA) in 2018, which introduced mandatory notification requirements for certain transactions, including investments in US businesses involving critical technologies, critical infrastructure and sensitive personal data of US citizens where a foreign government has a 'substantial interest' in the acquiror. Even if a mandatory filing is not required, parties may voluntarily file with CFIUS, particularly if control of a US business is to be acquired by a non-US acquiror and the likelihood of an investigation appears reasonably high or if competing bidders are likely to take advantage of the uncertainty of a potential investigation. FIRRMA also permits mandatory or voluntary filers to use an abbreviated declaration in lieu of the full-length notice for transactions that pose little or no material national security concerns.

CFIUS review has historically been associated with critical technology companies. However, supply chain vulnerabilities exposed by the covid-19 pandemic have made close scrutiny of foreign investments in pharma, biotech, medical devices and medical supplies companies more likely. While contracting parties deal with the risk of CFIUS review in a variety of ways, it is not uncommon in cross-border deals to address CFIUS-related execution risk by providing for a reverse termination fee that requires the acquiror to pay a fee to the seller in the event the transaction is terminated as a result of failure to obtain CFIUS approval.

Although CFIUS has been active in recent years, CFIUS's specific national security priorities are necessarily intertwined with those of the current presidential administration. In June 2021, President Biden signed an Executive Order revoking three executive orders signed under the prior administration that sought to stop transactions with popular social media apps TikTok and WeChat, as well as certain other Chinese-connected software apps.29 President Biden's executive order instead requires Cabinet-level threat and vulnerability assessments and continuing evaluation of transactions involving connected software applications.

Parties engaging in cross-border deals must also consider the potential political implications of their transactions, in particular if the target operates in a sensitive industry; if the acquiror's post-closing business plans contemplate significant changes in investment, employment or business strategy; or if the acquiror is sponsored or financed by a foreign government. Further, target companies that operate in certain industries, including defence contracting, energy, public utilities, telecommunications and media, financial institutions, transportation, gaming and insurance, may face additional state and federal regulatory hurdles.

Significant transactions, key trends and hot industries

The year 2021 will be notable not only for the volume and breadth of dealmaking activity, but also for the emergence of trends that could shape the path of corporate transactions for years to come. In this section, we will first discuss industries and sectors that have been driving the fast pace of M&A activity, and then review three developing trends of interest to M&A participants and practitioners.

i Overview

According to data from Dealogic, deals worth approximately $US4.8 trillion in total were signed globally in the first three quarters of 2021, with technology and healthcare transactions driving a large percentage of the overall volume. The aggregate value of deals signed through the first three quarters of 2021 has already far surpassed aggregate annual deal value in each of the five prior full years. The current pace makes 2021 one of the most active years for M&A on record, and based on activity thus far in the fourth quarter of 2021 as well as current market dynamics, it is likely the year will finish as strong as it began.

As noted, healthcare and tech deals led the way, though a variety of sectors witnessed mega deals over US$25 billion, which included the combination of AT&T Inc's entertainment, sports and news business with Discovery Inc in a Reverse Morris Trust transaction valued at approximately US$43 billion;30 Canadian Pacific Railway Co's agreement to purchase Kansas City Southern for US$31 billion;31 and the US$30 billion club deal for Medline Industries Inc involving Blackstone, Carlyle and Hellman & Friedman.

ii Private equity activity32

Although private equity activity fell precipitously during the early part of 2020 as a result of the covid-19 pandemic, private equity (PE) finished strong in 2020 and activity has only increased in 2021. Private equity activity in the United States reached nearly US$85 billion through the first three quarters of 2021 – more than double the transaction volume over the same period in the prior year, and above total US PE volume for all of 2020. Although competition for assets is fierce, PE is a major player, announcing blockbuster transactions such as Thoma Bravo's US$10.1 billion take-private of cybersecurity company Proofpoint, Inc in April 2021,33 as well as the Medline club deal discussed above.

The United States is a large source of overall PE volume, representing roughly half of global PE activity in the third quarter of 2021. PE firms are sitting on mountains of dry powder and continue to look for creative ways to put their capital to profitable use, especially in the wake of recent announcements that the Federal Reserve may raise interest rates in 2022 and uncertainty regarding the possibility of changes in the applicable tax and regulatory regime. Given current dynamics, PE funds are expected to continue to be a significant presence in US dealmaking.

iii Evolving antitrust environment

One of the most significant areas of development in M&A today is antitrust. The change in US presidential administrations in January 2021 and the transition to new leadership at the FTC and the DOJ have ushered in a new approach to merger enforcement, policy priorities and practices. These changes – both procedural and substantive – have led to delays and greater uncertainty for parties engaging in M&A in the United States.

The FTC, currently chaired by Lina Khan, has implemented two important procedural changes. The first procedural change, announced on 4 February 2021 (and prior to Khan's appointment as Chair of the FTC), is the suspension of the discretionary practice of granting early termination of the initial waiting period for HSR filings (as described in Section IX.i) in transactions that do not raise anticompetitive concerns.34 The FTC cited the transition to a new administration and the 'unprecedented volume' of HSR filings amid the global pandemic when announcing the indefinite suspension, but two FTC Commissioners criticised the change as unnecessarily interfering with the markets and efficient resource allocation.35 Indeed, in fiscal 2019, early termination was granted in over half of the transactions in which it was sought.36 Suspension of early terminations has resulted in delays for many transactions, including those that (based on historical approaches, at least) are likely to be of no concern to the antitrust authorities. And notwithstanding the refusal to grant early termination, the FTC continues to have authority to enforce against consummated transactions that are later found to be anticompetitive.

Indeed, as a second procedural change, the FTC announced on 3 August 2021 that it will send pre-consummation warning letters37 to merging companies alerting them that, notwithstanding the expiry of the statutory waiting period, the FTC's investigation remains open, that the agency may subsequently determine that the deal was unlawful, and that companies that choose to proceed with transactions that have not been fully investigated are doing so at 'at their own risk'.38 Some detractors have expressed concern that these pre-consummation warning letters, considered together with the FTC's suspension of early terminations, are causing the traditional HSR framework to suffer 'death by a thousand cuts'.39 Relatedly, the FTC announced that it would be expanding the scope of its merger reviews to be 'more comprehensive and analytically rigorous, though the statutory basis for investigating beyond the anticompetitive effects of the merger is unclear'.40

The procedural changes implemented by the FTC have created delays and tangible uncertainty for parties engaging in M&A transactions. Prior to the implementation of the current practices, parties undertaking a transaction that triggered HSR review were able to do so knowing that, so long as they complied with the statutory requirements of the merger review process (i.e., the filing of required premerger notifications, observance of waiting periods and responsiveness to information requests), they could proceed with their transaction with assurance, as a practical matter, that it would not later be subject to challenge.41 Now, with the legal import of pre-consummation warning letters being unclear,42 parties no longer have the ability to obtain early termination (even for transactions that do not pose anticompetitive concerns whatsoever).43

In addition to the procedural changes implemented by the FTC, lack of clarity in the substantive approach to merger enforcement is further complicating the regulatory landscape for parties engaging in M&A. In June 2020, the FTC and DOJ jointly issued new vertical merger guidelines, replacing the previous version of the guidelines from 1984.44 In September 2021, little over one year after the guidelines had taken effect, the FTC voted three to two to repeal the 2020 Guidelines.45 As of the time of this writing, the DOJ has not yet followed suit, though it has indicated it is conducting a 'careful review' of both the Horizontal Merger Guidelines and the Vertical Merger Guidelines.46 As a result, it is not clear what standard guides review of vertical mergers or whether the DOJ (which has not yet repealed the Vertical Merger Guidelines) is applying a different analysis.

Further, policy changes implemented by the FTC will increase the regulatory burden on merging parties not only in the context of specific transactions, but also for future transactions the companies may wish to pursue. For example, on 25 October 2021, the FTC announced its decision to reinstate its prior practice of requiring acquirors who settled merger enforcement actions to obtain prior approval from the FTC before closing transactions in relevant markets for a period of at least 10 years. Now, in addition to assessing the risk of regulatory challenge and the likelihood of prevailing on such a challenge, merging parties engaging in strategic transactions with antitrust risk will also need to consider the implications of mandatory notification and approval requirements for future transactions in the relevant market.47

For technology and healthcare transactions, dealmaking is complicated not only by general antitrust uncertainty, but also by indications that regulators may be particularly focused on the effects of deals in these sectors. In March 2021, the FTC announced the creation of a working group comprising representatives from the FTC as well as from competition regulators in Canada, the European Union and the United Kingdom that is focused on updating the FTC's approach to analysing the effects of pharmaceutical mergers.48 The FTC also launched a task force dedicated to monitoring competition in the tech markets in 2019,49 and subsequently produced a report on acquisitions by the five large technology companies (Alphabet, the parent of Google, Amazon, Facebook, Apple and Microsoft) that were not reported to the agencies under the HSR Act over the time period from January 2010 to December 2019.50 More generally, recent public focus on 'Big Tech' has encouraged more aggressive antitrust enforcement and led to calls for legislative change.

With so much public attention on antitrust issues generally, but in particular on tech and pharma M&A, transacting parties must carefully consider the possibility of regulatory challenge and should consider creative solutions to allocate the associated risk in their transaction agreements.

iv SPACs

A SPAC is a company formed for the purpose of raising capital in an IPO to finance a subsequent acquisition. The organisational documents of the SPAC will prescribe that the acquisition must be completed within a specified period of time – often two years. At the time that the SPAC completes its IPO, the target company has not yet been identified, but the subsequent acquisition will have the effect of taking the target company public. If the SPAC needs additional funds for the acquisition, it may arrange for a private investment in public equity (PIPE), which is often announced at the same time as the acquisition agreement.

Although SPACs have been on the rise since 2016, SPAC activity has exploded over the past two years, providing a third alternative to the traditional paths to liquidity of a sale or an IPO. Many SPACs have generated attention through their association with industry leaders and celebrities, and the promise of a structure that may allow for more 'marketing' of the deal makes them an attractive alternative to a traditional IPO. At the same time, regulators at the SEC and the Financial Industry Regulatory Authority (FINRA) have made clear that the SPAC boom is and will continue to be an area of regulatory and enforcement focus. Robert Cook, President and CEO of FINRA, stated at a July 2021 summit that FINRA was in the process of preparing 'targeted sweeps' of trends in the financial markets, including SPACs. In prepared remarks before the House Appropriations Committee in May 2021, SEC Chairman Gary Gensler questioned whether small investors were adequately protected with regard to SPACs,51 which followed an April 2021 statement issued by the then-Director of the SEC's Division of Corporation Finance questioning whether SPAC sponsors and private investors are sufficiently incentivised by the current liability regime to thoroughly diligence potential targets.52

Following numerous warnings issued by regulators, on 13 July 2021, the SEC announced an enforcement action arising out of a proposed merger between a SPAC named Stable Road Acquisition Company and a private target.53 The enforcement action related to allegedly inaccurate disclosures that misstated key testing results related to the target's technology. Significantly, the announcement press release featured a quote from SEC Chairman Gensler – underscoring that the highest levels of the agency are involved in the ongoing scrutiny of SPAC transactions.54

Although the volume of SPAC activity has slowed somewhat as 2021 has progressed – 105 SPAC transactions were announced in the second quarter of 2021, as compared to 469 in the first quarter – the overall rate of SPAC activity remains elevated relative to prior years. Further, SPAC transactions remain a key driver of overall M&A deal volume: the largest transaction announced in the third quarter of 2021 was a SPAC transaction in which Lionheart Acquisition Corp II will take MSP Recovery LLC public in a deal valued at US$32.6 billion.55 Given the amount of SPAC dry powder available for acquisitions – approximately US$186 billion as of 30 June 2021, according to DPD statistics – SPACs will continue to be a critical feature of the M&A landscape into 2022.

v Activism, ESG and M&A

After a brief lull during the onset of the pandemic, shareholder activists have once again trained their sights on M&A – pushing for companies to do deals, pushing against already announced transactions, and more – and deal-related campaigns remain a significant portion of overall shareholder activism activity. According to a Lazard review of activism trends, 44 per cent of all activist campaigns in the first half of 2021 had an M&A component, with 56 per cent of all global M&A campaigns focused on thwarting or sweetening announced deals. Through the first half of 2021, a greater proportion of M&A activism campaigns were focused on challenging existing transactions rather than agitating for a sale of the company, as compared to previous periods.

In addition to M&A-focused activism, activism related to environmental, social and governance (ESG) matters has been a growing area of attention. And as shareholders and other stakeholders have increasingly focused on ESG concerns, those concerns have begun to play a role in M&A transactions,56 including M&A due diligence, with increased attention on risks related to human capital, diversity, labour practices, community relations, environmental impact and cultural fit.

One tangible illustration of how this has translated into M&A is the development of merger agreement provisions that require a target to represent that there have been no allegations of sexual misconduct among senior executives. As momentum around ESG continues to grow, the importance of evaluating transactions with broader stakeholder considerations in mind and considering new technology in transaction agreements to address risks relating to these considerations will only become more important.

Financing of M&A: main sources and developments

Following a frenzied end to 2020, acquisition financing activity has been robust throughout 2021. As the most acute impacts of the pandemic have receded, lenders have opened financing to sectors that were hit hard by covid-19, including real estate, consumer retail and energy. As financial and strategic buyers alike have aggressively pursued M&A opportunities over the course of 2021, M&A financing has surged, boosted not only by merger activity, but also low interest rates and ample liquidity, which have kept borrowing costs down. In particular, record low high-yield credit spreads have helped drive the boom in leveraged buyouts (LBOs), with LBO activity through the first six months of 2021 at an all-time high, culminating in the PE club acquisition of Medline for over US$30 billion, which the sponsors financed with almost US$15 billion of high-yield debt. The upward momentum is expected to continue through year end as economies around the world continue to make progress in the recovery from the pandemic. Indeed, many of the liquidity-driven financings entered into by companies in challenged sectors like travel and retail in mid-2020 have already been refinanced in 2021 with new, much cheaper debt.

Employment law

As discussed above, ESG factors, in particular considerations related to human capital, are a critical focus in corporate governance and M&A generally. One area of specific focus is increasing diversity on corporate boards and improving the transparency of related disclosures. For example, new listing rules submitted by Nasdaq and approved by the SEC in August 2021 are designed to promote greater transparency regarding board diversity by requiring Nasdaq companies to annually publish in a uniform format statistical information regarding each director's self-identified characteristics, and to have, or explain why the company does not have, at least two 'diverse' directors.57 The major proxy advisory firms, as well as large institutional investors, also have policies and guidelines designed to advance board diversity.58 Legislation adopted by the state of California went even further than disclosure-based policies, affirmatively mandating representation of underrepresented populations on the boards of directors of public companies that are headquartered in California.59

These laws, rules and policies reflect the growing consensus among numerous stakeholders that diversity not only improves company governance, but also is positively correlated with financial performance and enhanced investor confidence. Given this growing consensus, merger parties will need to pay particular attention to diversity considerations when considering integration activities and post-closing governance for combined companies.

Tax law

For the past four years, individual and corporate taxpayers have adapted to the Tax Cuts and Jobs Act (TCJA) legislation that was enacted at the end of 2017. With the change in US presidential administrations in January 2021, the US business taxation regime may undergo yet another significant change. Parties therefore must consider the tax impact of their transactions not only under current law, but must also carefully analyse what a potential change in business taxation law means for their deal timing and structure. Against this backdrop, companies have developed transaction processes and implemented protective provisions intended to address the potential implications of entering into or closing deals before or after potential tax legislation is enacted or, through grandfathering provisions, is effective.

In September 2021, the US House of Representatives Ways and Means Committee, which has jurisdiction over taxes, tariffs and other revenue-raising measures, introduced budget reconciliation legislation that proposes a number of important tax changes for individuals and businesses alike. Key aspects of the proposal include replacing the flat 21 per cent corporate tax rate with a graduated rate structure that has a top corporate tax rate of 26.5 per cent, increasing the maximum tax rate on long-term capital gains from 20 per cent to 25 per cent and increasing the maximum individual tax rate to 39.6 per cent.

Although it is presently unknown what, if any, changes will be made to the US tax code (and when any such changes would be effective), the proposals under consideration could have a meaningful impact on M&A, including by increasing the tax costs to sellers engaging in transactions, and reducing the benefits buyers are able to model in future acquisitions. Parties on both sides of transactions should carefully monitor legislative developments and incorporate tax considerations into their M&A planning.

Competition law

As noted above, one of the key developments in M&A in 2021 has been changes in the antitrust landscape. This section will further explore that trend, first providing an overview of the current regulatory regime for antitrust approval of transactions in the United States, then discussing major challenges that exemplify the current administration's interventionist approach to M&A enforcement, and concluding with a summary of a few of the proposals currently pending in US Congress that have the potential to overhaul the current regulatory landscape.

i Overview

Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act), subject to certain exceptions, parties engaging in transactions that meet specified thresholds60 have a mandatory obligation to file a notification, which is then reviewed through a clearance process administered by the Antitrust Division of the DOJ and FTC to determine which agency will investigate potential anticompetitive issues. The fact that a transaction is not reportable under the HSR Act does not preclude either the DOJ or the FTC from reviewing and potentially challenging the deal. Further, state attorneys general may also review and challenge transactions. Generally (but not always), state attorneys general challenges are conducted in conjunction with the federal agency handling the transaction.

ii Notable 2020 and 2021 enforcement actions

In 2020 and into 2021, the agencies brought a number of high-profile enforcement actions, challenging both pending and consummated transactions, including the following.


The FTC filed suit in December 2020 against Facebook, alleging a course of conduct designed to eliminate potential threats to its competitive position that included the company's acquisition of Instagram in 2012 and WhatsApp in 2014. A bipartisan coalition of 46 state attorneys general filed suit on the same day, alleging conduct similar to that alleged by the FTC but emphasising different harms. Both complaints were dismissed by the district court in June 2021.61 The FTC subsequently amended its complaint, and at the time of this writing, Facebook's challenge to the amended complaint has not been resolved. The state attorneys general appealed the dismissal of their parallel lawsuit to the District of Columbia Circuit Court of Appeals, and this appeal remains pending.

One issue that received significant attention in the district court's decision granting Facebook's motion to dismiss is how to define the relevant antitrust product market.62 This issue – which is often critical to the antitrust analysis, and can be determinative of whether transactions are permitted to proceed or will be challenged – will likely continue to be an important consideration in parties evaluating, and agencies reviewing, tech transactions, as courts grapple with how to apply historical market definitions to new technologies, and observers advocate for revising the traditional, market-based merger evaluation framework.

Aon-Willis Towers

One of the administration's largest antitrust wins in 2021 was the termination of the US$30 billion mega deal between insurance brokers Aon plc and Willis Towers Watson in July 2021. The parties decided to terminate after the deal had received conditional approval from the European Commission. Despite achieving this regulatory marker, the parties were unable to reach a settlement with the DOJ and ultimately elected to abandon the transaction rather than continue in the face of what was expected to be a protracted litigation process.63

Airline joint venture

In September 2021, the DOJ and six state attorneys general filed a lawsuit seeking to block the 'Northeast Alliance' between American Airlines and JetBlue. The crux of the complaint is that the alliance will eliminate significant competition at key airports and, in effect, result in further consolidation of an industry that is already concentrated.64 The airlines have promised to fight the challenge,65 which remains pending at the time of this writing.

iii Executive and legislative developments

There is strong commitment at both the executive and legislative levels of government to vigorously enforcing existing antitrust laws and potentially overhauling the current doctrinal framework.

At the executive level, President Biden issued an expansive Executive Order in July 2021 aimed at promoting competition and lowering prices.66 The Executive Order requires numerous federal agencies to undertake over seventy initiatives and specifically commits to addressing 'the rise of the dominant Internet platforms.'67

At the legislative level, various bills introduced and currently pending in Congress have the potential to fundamentally alter (and, in the words of proponents, modernise) the antitrust landscape in the United States. Senator Klobuchar introduced Section 225, the Competition and Antitrust Law Enforcement Reform Act that, among other things, proposes to shift the burden of proof in certain sufficiently large or consequential transactions from the agencies to the merging parties, who would be required to establish that the acquisition will not materially harm competition, and would lower the threshold to find a merger or acquisition unlawful.68 Senator Hawley introduced the Trust-Busting for the Twenty-First Century Act, which specifically takes aim at technology companies and prohibits companies worth over US$100 billion from engaging in acquisitions that lessen competition 'in any way'.69 Senators Lee and Grassley have proposed the Tougher Enforcement Against Monopolists Act, which seeks to modify the standards used to evaluate mergers and would increase the penalties for antitrust violations.70

Given the commitment of representatives of both parties to reforming the antitrust regime, the existing proposals will likely be the subject of continued debate and discussion in the coming months. With thin margins in both houses of Congress, it is impossible to predict the outcome of this process, but antitrust reform may be one area where legislation is ultimately adopted.


Although the covid-19 pandemic disrupted business-as-usual for companies and individuals across the United States for much of 2021, dealmaking activity was remarkably strong, with records likely to be set in terms of deal volume generally and across a number of industries. While deal activity in the beginning of the year was driven by industries that were relatively insulated from the pandemic, the latter half of 2021 saw significant transactions announced in a variety of industries, including many that faced a more significant impact from covid-19. The pace of M&A activity has been driven by factors that include improving economic conditions, increased optimism as the United States and Europe continue vaccine rollouts, near-zero interest rates, and the potential for tax reform.

The year 2021 also saw important developments in Delaware corporate law. The Delaware Court of Chancery's invalidation of the Williams Companies' poison pill served as an important reminder that although shareholder rights plans remain a legitimate tool under Delaware law, directors' discretion is not limitless, and directors must justify their defensive actions with a record that is tailored to the specific circumstances faced by the company. The Delaware courts have also continued to refine the case law related to books-and-records demands under Section 220 of the DGCL, providing important clarity regarding the standard applicable to such demands.

At the same time, 2021 was a time of change for M&A, with impacts that will be felt for many years to come. One significant trend is the evolution in the antitrust landscape as the agencies, and in particular the FTC, implement changes to historical practices. Further, with bipartisan support for legislative change and various proposals currently pending in Congress, changes to the antitrust regime seem likely. Another trend is increasing regulatory interest in SPACs, which proliferated in 2020 and remained very active well into 2021.

If the first three quarters of 2021 are any indication, M&A activity will continue its fast pace for the last quarter of 2021 and into 2022 as the US economy as well as economies around the world continue to reopen and recover from the covid-19 pandemic. Given current indications that legislative reform of antitrust and taxation law are on the horizon, parties will have even greater incentives to sign and consummate transactions before the implementation of potentially adverse changes in applicable regulatory requirements. Only time will tell whether and how these trends will impact the record pace of dealmaking activity experienced in 2021.


1 Adam O Emmerich and Mark A Stagliano are partners and Anna M D'Ginto is an associate at Wachtell, Lipton, Rosen & Katz. The authors would like to acknowledge the contributions of partners Ilene Knable Gotts, Ryan A McLeod, John R Sobolewski, Tijana J Dvornic, and Erica E Bonnett.

2 Data in this section regarding M&A activity comes from Dealogic as of 14 October 2021, unless otherwise indicated. Dealogic began tracking M&A activity in 2011.

3 See, e.g., Remarks of Associate Attorney General Vanita Gupta at Georgetown Law's 15th Annual Global Antitrust Enforcement Symposium (14 September 2021) ('I hope companies are, in this moment, paying close attention: anticompetitive mergers should not make it out of the boardroom. If they do, we will not hesitate to challenge those mergers. And, if we litigate, the department – from leadership to our extremely talented career attorneys, economists and staff – is committed to winning these cases.'),

4 The agencies cited the transition to a new presidential administration as well as an 'unprecedented' volume of HSR filings in support of the suspension, and noted that they expected the suspension to be 'brief.' See Press Release, FTC, DOJ Temporarily Suspend Discretionary Practice of Early Termination (4 February 2021),
temporarily-suspend-discretionary-practice-early. To date, the agencies have not given any indication when, or if, the current suspension will be lifted. The prior administration also temporarily suspended early terminations in March 2020 at the beginning of the covid-19 pandemic as the agencies shifted to a new e-filing system, but the suspension was lifted after approximately two weeks. See Resuming Early Termination of HSR Reviews (27 March 2020),

5 For example, generally under state law the shareholders of the buyer are not entitled to vote in approval or disapproval of a transaction that has been approved by the buyer's board of directors. However, if the consideration for the transaction is voting shares of buyer stock, and the stock issuance is equal to 20 per cent or more of the buyer's outstanding shares, then the NYSE and Nasdaq rules require a shareholder vote (even though the vote is not required under Delaware law or the federal securities laws).

6 See Delaware General Corporation Law (DGCL), Section 141(a) ('The business and affairs of every corporation . . . shall be managed by or under the direction of a board of directors').

7 See Revlon, Inc v. MacAndrews & Forbes Holdings, Inc, 506 A.2d 173, 182 (Del. 1986).

8 See Unocal Corp v. Mesa Petroleum Co, 493 A.2d 946, 955 (Del. 1985).

9 See In re Tyson Foods, Inc Consol S'holder Litig, 919 A.2d 563, 596 (Del. Ch. 2007).

10 NJ Carpenters Pension Fund v. infoGROUP, Inc, C.A. No. 5334-VCN, 2011 WL 4825888, at *11 (Del. Ch. 6 October 2011).

11 See, e.g., Ams Mining Corp v. Theriault, 51 A.3d 1213, 1240 (Del. 2012).

12 Deal-related statistics in this section come from Deal Point Data (DPD) statistics.

13 See Moran v. Household Int'l, Inc, 500 A.2d 1346 (Del. 1985).

14 See Trilogy, Inc v. Selectica, Inc, 5 A.3d 586 (Del. 2010) (upholding a NOL pill with a five per cent trigger on a Unocal analysis).

15 The Williams Cos Stockholder Litig, No. 2020-0707-KSJM, 2021 WL 754593, at *1 (Del. Ch. 26 February 2021) (McCormick, V.C.).

16 id. at *9.

17 id.

18 id. at *2.

19 id. at *37.

20 See Order of the Delaware Supreme Court in the Williams Cos Stockholder Litig, Case No. 139,2021 (3 November 2021).

21 id. at *35.

22 See generally William Savitt & Ryan A McLeod, 'Court of Chancery Enjoins Anti-Activist Rights Plan' (1 March 2021).

23 Lavin v. W Corp, C.A. No. 2017-0547-JRS, 2017 WL 6728702, at *10 (Del. Ch. 29 December 2017).

24 id. at *7.

25 See, e.g., Inter-Local Pension Fund GCC/IBT v. Calgon Carbon Corp, No. CV 2017-0910-MTZ, 2019 WL 479082 (Del. Ch. 25 January 2019).

26 See Pettry v. Gilead Sciences, Inc, C.A. No. 2020-0132-KSJM, 2020 WL 6870461, at *30 (Del. Ch. 24 November 2020) ('Fee shifting may be appropriate here. Gilead exemplified the trend of overly aggressive litigation strategies by blocking legitimate discovery, misrepresenting the record, and taking positions for no apparent purpose other than obstructing the exercise of Plaintiffs' statutory rights.').

27 CFIUS Annual Report to Congress: Report Period CY 2020,

28 CFIUS Annual Report to Congress: Report Period CY 2019,

29 See Executive Order on Protecting Americans' Sensitive Data from Foreign Adversaries (9 June 2021),

30 See Discovery, Inc. Form 8-K (filed 20 May 2021).

31 See Kansas City Southern Form 8-K (filed 15 September 2021).

32 Data in this section regarding M&A activity comes from Dealogic as of 14 October 2021, unless otherwise indicated.

33 See Proofpoint, Inc Form 8-K (filed 27 April 2021).

34 Press Release, FTC, DOJ Temporarily Suspend Discretionary Practice of Early Termination (4 February 2021),

35 Statement of Commissioners Noah Joshua Phillips and Christine S Wilson Regarding the Commission's Indefinite Suspension of Early Terminations (4 February 2021),

38 Press Release, FTC Adjusts its Merger Review Process to Deal with Increase in Merger Filings (3 August 2021),

39 Statement of Commissioner Christine S. Wilson Regarding the Announcement of Pre-Consummation Warning Letters (9 August 2021),

40 Making the Second Request Process Both More Streamlined and More Rigorous During this Unprecedented Merger Wave (28 September 2021),

41 Although post-closing challenges are possible under the HSR Act, such challenges have, historically, been rare. This may be another area of change, however – one recent exception is the FTC's high-profile fight to require Facebook to divest assets related to two previously consummated transactions, initially filed 9 December 2020. See Press Release, FTC Sues Facebook for Illegal Monopolization (9 December 2020),

42 See, e.g., Core-Mark Holding Company, LLC Form 8-K (filed 11 August 2021) (announcing the expiry of the 30-day statutory waiting period and noting that the merging parties 'believe that the [pre-consummation warning] letters they received do not change or expand the FTC's ability under US law to investigate and challenge the Mergers after the expiry of the HSR Act waiting period and after consummation of the Mergers').

43 Some parties have explicitly addressed the risk of receiving a pre-consummation warning letter in their transaction agreement. See, e.g., Membership Interest Purchase Agreement by and among Shank's Extracts, Inc., Jeffrey F. Lehman, Rolling Rock Transit Co. & Universal Corp. (6 September 2021) (allowing purchaser to delay closing by 30 days beyond expiry of the HSR statutory period if a pre-consummation warning letter is received),

45 Press Release, Federal Trade Commission Withdraws Vertical Merger Guidelines and Commentary (15 September 2021),

46 Press Release, Justice Department Issues Statement on the Vertical Merger Guidelines (15 September 2021),

47 See Press Release, Proposed Order Marks First Use of Prior Approval Authority Under New Policy Statement Confirming that Prior Approval Is Once Again Standard Practice (25 October 2021),

48 Press Release, FTC Announces Multilateral Working Group to Build a New Approach to Pharmaceutical Mergers (16 March 2021),

49 Press Release, FTC's Bureau of Competition Launches Task Force to Monitor Technology Markets (26 February 2019),

50 Non-HSR Reported Acquisitions by Select Technology Platforms, 2010–2019: An FTC Study (September 2021),

51 Testimony of SEC Chairman Gary Gensler Before the Subcommittee on Financial Services and General Government, US House Appropriations Committee (26 May 2021),

52 Public Statement of John Coates Regarding SPACs, IPOs and Liability Risk under the Securities Laws (8 April 2021),

53 Order In the Matter Momentus, Inc., Stable Road Acquisition Corp., Srcni Holdings, LLC, and Brian Kabot (13 July 2021), Release No. 10955.

54 Press Release, SEC Charges SPAC, Sponsor, Merger Target, and CEOs for Misleading Disclosures Ahead of Proposed Business Combination (13 July 2021),

55 See Lionheart Acquisition Corporation II Form 8-K (filed 15 July 2021).

56 See, e.g., Andrew R Brownstein, Steven A Rosenblum, David M Silk, Mark F Veblen, Sabastian V Niles & Carmen X W Lu, 'The Coming Impact of ESG on M&A' (18 February 2020).

57 See SEC Release No. 34-92590 (6 August 2021),

58 See, e.g., Institutional Shareholder Services, United States Proxy Voting Guidelines and Benchmark Policy Recommendations (19 November 2020),; Glass Lewis Guidelines: An Overview of the Glass Lewis Approach to Proxy Advice (2021),

59 See Cal. Assembly Bill No. 979.

60 The minimum threshold, which is adjusted annually for inflation, is US$92 million for fiscal year 2021. See Premerger Notification Office Staff, HSR Threshold Adjustments and Reportability for 2021 (17 February 2021),

61 See Federal Trade Commission v. Facebook, 2021 WL 2643627 (D.D.C. 28 June 2021); State of New York v. Facebook, 2021 WL 2643724 (D.D.C. 28 June 2021).

62 See Facebook, 2021 WL 2643627, at *14 ('The FTC's Complaint says almost nothing concrete on the key question of how much power Facebook actually had, and still has, in a properly defined antitrust product market.').

63 See Joint Press Release, Aon plc and Willis Towers Watson (26 July 2021).

64 Press Release, Justice Department Sues to Block Unprecedented Domestic Alliance Between American Airlines and JetBlue (21 September 2021),

65 See JetBlue CEO Robin Hayes Provides an Update on the Northeast Alliance and Action by the U.S. Department of Justice (DOJ) ('In court, DOJ is sure to face an uphill battle opposing the expansion of low fares in New York and Boston. There is absolutely no evidence that the NEA is harming consumers'),; Press Release, American Airlines Statement on Lawsuit Filed by U.S. Department of Justice (21 September 2021) ('We look forward to vigorously rebutting the DOJ's claims and proving the many benefits the Northeast Alliance brings to consumers'),

66 Executive Order on Promoting Competition in the American Economy (9 July 2021),

67 id.

68 Section 225 - Competition and Antitrust Law Enforcement Reform Act of 2021 (introduced 4 February 2021),

69 Section 1074 - Trust-Busting for the Twenty-First Century Act (introduced 12 April 2021),

70 Press Release, Sens. Lee, Grassley Introduce TEAM Act to Reform Antitrust Law (14 June 2021),

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