Big Deal Trends

Buoyed by cash-rich buyers, low interest rates, and a healthy stock market, mergers and acquisitions last year reached their highest value worldwide since 2007.

A sellers' market like this means fatter deal values and, frequently, more work for California lawyers. Several who specialize in M&A said they see the spate of good fortune continuing in 2015, though some factors could put a damper on things-including an anticipated Federal Reserve interest rate hike and continued low oil prices.

"People's risk tolerance is way up, banks are lending aggressively, and that's helping deals get done," says Will Chuchawat, a partner at Sheppard, Mullin, Richter & Hampton in Los Angeles and chair of the firm's M&A team.

The number of California-based deals that were publicly disclosed rose about 9 percent, from 1,314 in 2013 to 1,436 in 2014. But the value of those deals nearly tripled from $106.6 billion to $300.7 billion, according to S&P Capital IQ data. That total includes a few mega-deals that were announced but didn't close in 2014, such as the $48.5 billion purchase of DirecTV by AT&T and the $66 billion sale of Botox maker Allergan to pharmaceutical company Actavis.

The biggest deals in California involved high-value tech, consumer goods, and biotech companies, and activity in many industries here was dominated by a single deal. But California-based deals rose significantly in most sectors-in terms of both number and total value-and they included many companies with more modest revenue or market capitalization.

"It's middle market as well, absolutely, because the rising tide of valuations lifts all boats," says Sayre E. Stevick, a partner with Fenwick & West in Mountain View.

Sellers' Market

Buyers courted a small group of attractive sellers, pushing up prices in some cases. "There's a bunch of people chasing the really good companies, and that's where the bidding wars happen," says Andrew M. Apfelberg, a partner at Greenberg Glusker Fields Claman & Machtinger in Los Angeles. Gary S. Rabishaw, managing director of Intrepid Investment Bankers in Los Angeles, agrees: "You can tend to negotiate better for your client as the adviser to the seller with more competition."

Stevick helped represent the instant-messaging service WhatsApp in its roughly $20 billion sale to Facebook. In addition to safeguarding the interests of the company's then-450 million users, a central goal was to hold onto its 50 employees, which he said has become a frequent concern. "Talent is very mobile," Stevick says. "Then it becomes necessary to really be creative in how to retain the talent that you're acquiring."

Tad J. Freese, a partner in Menlo Park with Latham & Watkins, which helped advise Allergan, says his firm's roster of health and tech M&A clients remains robust in 2015. "We're seeing no signs of slowdown."

Private Equity, International

Scott Joachim, a partner at Fenwick & West and chair of the firm's private equity practice, says that area is hot. "In Silicon Valley we are experiencing a very sizable uptick in technology private-equity transactions." He attributes this to the availability of investment capital, of course, but also to confidence that the tech industry appears more mature and stable than it was during the 1990s dot-com boom. Nationwide, private equity firms sold investments at new highs in 2014, with 958 deals worth $262.1 billion, compared with 735 deals worth $153.6 billion in 2013, according to Mergermarket.

European companies showed considerable interest in buying U.S. companies last year, resulting in 421 announced deals valued at $259.7 billion, the highest on record, according to Mergermarket. Jonathan K. Layne, a partner at Gibson, Dunn & Crutcher in Los Angeles, says the "cross-border aspect" of so many deals brings "a whole new set of laws and customs and traditions that have to be taken into account."

What to Watch

Rabishaw expects a deal he now has under way to face challenges because it's in the energy sphere. "One of the potential concerns for 2015 is declining oil prices in certain parts of California that have a high population of energy companies," he says.

Then there's the potential interest rate hike; Federal Reserve Chair Janet L. Yellen has said rates could rise this year. But lawyers say that may not have much impact. "We're at such lows right now," says Chuchawat, "that I don't think a small uptick is going to [make] that much of a dent."

West Coast-Based Deals

Who's Advising on the Most Deals?
Of the ten law firms that worked on the most M&A deals involving West Coast companies in 2014, nine appear on this magazine's list of firms with the largest presence in California (see "The California 50," September 2014). Totals include some withdrawn bids.

Deal counts and values varied widely. At DLA Piper, the average West Coast deal was worth $48 million. At Weil, Gotshal & Manges, it was worth $2.9 billion, thanks in part to Weil's role advising client DirecTV on its pending sale to AT&T for $67.1 billion, including debt.-E. M.

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