The Art of the Deal: Insights from Leading Mergers and Acquisitions Attorney

October 17, 2017

There’s been a tremendous explosion in M&A activity across all sectors of the economy in the aftermath of the financial crisis, but at the same time, many of the biggest deals don’t get across the finish line. This reality, according to Scott Barshay, global head for the Mergers & Acquisitions Practice at Paul, Weiss, is the result of many factors.

Barshay outlined these factors for a packed crowd at the UM School of Business Oct. 16 during “The Art of the Deal: How to Navigate Complex Mergers and Acquisitions in 2017,” the latest installment in the School’s Distinguished Leaders Lecture Series. Among those in attendance: School of Law professor William Widen, who was Barshay’s first mentor at his former law firm, Cravath. Barshay, who has represented clients in some of the biggest and highest-profile M&A transactions and activist defense matters in recent years, got to know Dean John Quelch while representing a company in a contentious sale where Quelch was on its board. Among his other clients: Anheuser-Busch InBev in its $107 billion acquisition of SABMiller, Qualcomm in its pending $47 billion acquisition of NXP and Cameron International in its $15 billion sale to Schlumberger. Scott has also advised numerous companies and their boards in defending against activist hedge funds, including ADP in its pending proxy contest with Pershing Square, BHP Billiton in the activist campaign by Elliott and Honeywell in the activist campaign by Third Point.

Every week, there’s a new multibillion dollar transaction.

Scott Barshay
Global Head, Mergers & Acquisitions Practice, Paul, Weiss

The explosion in M&A activity can be traced back to macroeconomic factors like steady but low GDP growth, low inflation, and cheap and readily available debt, he said. Add to that both the influence of activist hedge funds and the capital-rich private equity funds, and you have companies that are eager to strike deals. “Every week, there’s a new multibillion dollar transaction,” Barshay said. Companies looking for growth in an environment of low GDP growth and low inflation often turn to acquisitions. “M&A can grow revenue and the bottom line.”

On the flip side, deals are routinely derailed by today’s strict regulatory environment. “Regulators from around the world are raising issues we never could’ve predicted,” he said. Hostile bids, meantime, have become far more difficult to pull off.

He compared a hostile takeover that doesn’t gain traction to cartoon character Wiley Coyote running off the cliff, falling to the ground upon noticing there’s nothing beneath him. He has recently been involved with two failed attempts at hostile takeovers, one as the defense and one as the hostile bidder. As a lawyer who regularly fights against hedge fund activists, Barshay maintained that they’re disruptive to companies’ business plans. “They’re incentivized to be very aggressive and leave other shareholders holding the bag if their grand theories don’t work out,” he said.

 

Procter and Gamble held off an activist with the help of Vanguard, but two other index funds voted with the activist. “That’s cause for concern,” he said. “I hope it isn’t a harbinger of things to come.”

Short of a major event “like North Korea doing something crazy,” Barshay said he sees the M&A boom continuing, even if the equity markets take a hit. If tax reform gets through Congress, he said, the market stands to see an influx of up to $1 trillion from money currently being stored in overseas accounts. “A chunk of that money will be used in the U.S. toward M&A,” he predicted.

He offered his own theory on why so many deals are cut in the corporate world while Washington is at an impasse. For one, he said, there’s no attempt in Washington to understand where the other side is coming from and this means there’s no way to figure out how to get them to where you want them to be. “That’s the heart of negotiation!” he said. Further, the checks-and-balances structure of the government causes gridlock without broad consensus, whereas the structure of corporate America is that of a parliamentary democracy where the CEO and board work to always be in sync.

“Having been a client of this guy,” Quelch told the crowd, referring to Barshay. “He always gave us confidence that there would be light at the end of the tunnel. Even when things looked desperate, his confidence gave us confidence. And it was always fun to have him in the room.”

The crowd couldn’t have agreed more.


Upcoming Lectures

November 9, 2017
Can Chinese Businesses Go Global? The Journey of a Chinese Private Equity Entrepreneur
Ming-Po CAI
Founder and President
Cathay Capital Private Equity

November 28, 2017
Sunil Gupta
Edward W. Carter Professor of Business Administration and
Chair, General Management Program
Harvard Business School

December 5, 2017
Michael Schrader
Co-Founder and CEO
Vaxess Technologies Inc.

January 16, 2018
David Kenny
Senior Vice President
IBM Watson and Cloud Platform

February 20, 2018
William McNabb
Chairman and CEO
Vanguard Group Inc.

March 22, 2018
Gail McGovern
President and CEO
American Red Cross

Back to top