Led by Latham & Watkins and Baker McKenzie, the largest announced M&A deal of the past week was a health care combination—the merger of Healthpeak Properties and Physicians Realty Trust—worth $21 billion. But there were also several transactions (four) that crossed the $5 billion mark.
This past week was a rarity in 2023, where large and small deals alike were present en masse. However, several prominent dealmakers say it may not be a sign of a deal market resurgence. “Bottom line, M&A has always been and will continue to be lumpy and somewhat unpredictable,” noted Adam Emmerich, partner in Wachtell, Lipton, Rosen & Katz’s corporate group.
In addition to interest rates and inflation, high bond yields have thrown another wrench in the machinery.
“The rise in bond yields will certainly raise borrowing costs, which impacts M&A and the broader economy,” Frank Aquila, Sullivan & Cromwell’s senior M&A partner, said via email. “First by raising the cost of capital, which in turn reduces the return on investment for prospective buyers. This is particular acute for private equity buyers. Second, is the negative impact on economic growth and business activity generally. While the economy has been vibrant so far, ultimately it triggers a slowdown.”
But there is a flip side to that. The increase in bond yields could tempt the Federal Reserve to halt its rate increases (or at least pare them back), which would create a more suitable market for dealmaking. Two steps forward, one step back, it seems.
“Drops in interest rates would be welcomed by the M&A world because they translate into better returns on leveraged acquisitions,” said Ethan Klingsberg, co-head of the U.S. corporate and M&A practices at Freshfields Bruckhaus Deringer, via email.
But he also warned that other factors, such as financing and how to get it, could continue to hobble deal work until the big banks decide to wade further back into the water.
“But I think the more significant challenge that leveraged M&A is facing is the breadth of available financing,” Klingsberg said. “Cobbling together a big financing and workable capital structure through assembling a slew of private credit funds can be daunting for many buyers, including private equity buyers. As the commercial banks more aggressively get back into the game of financing leveraged acquisitions, that will be much more impactful than simply having interest rates drop a bit.”
Either way, it seems that although deal work will not freeze up as it had late in 2022, it is not likely to hit 2021 numbers (or even early 2022 numbers) anytime soon.
”I wouldn’t predict an M&A resurgence in the near term,” said Emmerich, at Wachtell, via email. “But I wouldn’t bet against a baseline of activity, including large and very large deals driven by particular industry dynamics and pressure for consolidation, or by the effect of new technologies, not least AI, and the industries and companies it creates and impacts.”
Deals on the Radar
The information regarding the below deals was derived exclusively from Law.com Radar.
Healthpeak Properties Inc. and Physicians Realty Trust announced they have entered into a definitive agreement to combine in an all-stock merger valued at $21 billion. The transaction, announced Oct. 30, is expected to close in the first half of 2024. Denver-based Healthpeak was advised by a Latham & Watkins team led by partners Andrew Elken, Darren Guttenberg and Charles Ruck. Physicians Realty Trust, which is based in Milwaukee, was advised by a Baker McKenzie team led by partners Chris Bartoli and Kathryn Strong.
Realty Income has agreed to acquire Spirit Realty Capital in an all-stock transaction valued at an enterprise value of $9.3 billion. The transaction, announced Oct. 30, is expected to close in the first quarter of 2024. San Diego-based Realty Income was advised by a Latham & Watkins team led by partners Charles Ruck, Darren Guttenberg and Bradley Helms. Spirit Realty, which is based in Dallas, was represented by a Wachtell, Lipton, Rosen & Katz team led by partners Adam O. Emmerich and Karessa L. Cain.
Cedar Fair and Six Flags Entertainment have entered into a definitive merger agreement to combine in a merger of equals transaction. The pro forma enterprise value of the combined company is approximately $8 billion. The transaction, announced Nov. 2, is expected to close in the first half of 2024. Cedar Fair was represented by Weil, Gotshal & Manges and Squire Patton Boggs. Six Flags was advised by a Kirkland & Ellis team led by partners Sarkis Jebejian, Emily Lichtenheld and Allison Wein.
Kirkland & Ellis is advising private equity firm Bain Capital on the $5.3 billion acquisition of consulting firm Guidehouse from technology investor Veritas Capital. The transaction was announced Nov. 6. The McLean, Virginia-based Guidehouse advises companies in the public sector and commercial marketplace, including firms within the defense and security, energy, infrastructure and sustainability, financial services and health industries. PricewaterhouseCoopers LLP is serving as accounting adviser, and Kirkland & Ellis is serving as legal counsel to Bain Capital. Guggenheim Securities LLC, Jefferies LLC and Goldman Sachs & Co. LLC are serving as financial advisers to Guidehouse and Veritas. Milbank and Covington & Burling are serving as legal counsel to Guidehouse and Veritas.
Ascential plc has agreed to sell its digital commerce business to Omnicom Group Inc. and its product design business to Wind UK Bidco 3 Limited, a newly formed company established by funds advised by Apax Partners LLP, for a combined enterprise value of 1.4 billion pounds ($1.7 billion). The transactions were announced Oct. 30. London-based Ascential was represented by Slaughter and May; Travers Smith; and Fried, Frank, Harris, Shriver & Jacobson. The Fried Frank team was led by partners Maxwell Yim, Michael Alter and Philip Richter. New York-based Omnicom was advised by a Latham & Watkins team led by Chicago partners Bradley Faris and Jason Morelli.
Electronic company Hubbell Inc. has agreed to acquire Northern Star Holdings Inc., a portfolio company of Comvest Partners and known commercially as Systems Control, for $1.1 billion in cash. The transaction is expected to close by the end of 2023. Shelton, Connecticut-based Hubbell was represented by a Wachtell, Lipton, Rosen & Katz team led by partners Joshua Cammaker and John L. Robinson. Counsel information for Iron Mountain, Michigan-based Northern Star was not immediately available.
SPAC Mergers:
GCT Semiconductor Inc. is going public through a SPAC merger with Concord Acquisition Corp III. As a result of the merger, GCT Semiconductor will be listed on the New York Stock Exchange with a post-transaction equity value of approximately $661 million. GCT Semiconductor, which is based in San Jose, California, was represented by Morgan, Lewis & Bockius. The SPAC was advised by Greenberg Traurig. DLA Piper represented the financial advisers, which were TD Cowen and B. Riley Securities.
Debt Offerings:
Bristol-Myers Squibb was counseled by Kirkland & Ellis in a debt issuance valued at $4.5 billion. Underwriters for the offering, including Barclays, Citigroup and Morgan Stanley, were counseled by Davis Polk & Wardwell.
Cleary Gottlieb Steen & Hamilton has counseled BofA Securities, Citigroup and JPMorgan Chase in the underwriting of a bond offering valued at $2.83 billion. The issuance was announced Oct. 30 by the Republic of Chile. The Cleary Gottlieb team included partner Jorge Juantorena.
Western Digital was counseled by Cleary Gottlieb Steen & Hamilton in a debt issuance worth $1.4 billion. The Cleary Gottlieb team was led by partner Helena Grannis.
Humana was counseled by Fried, Frank, Harris, Shriver & Jacobson in a debt issuance valued at $1.35 billion. Underwriters for the offering, including Barclays, BofA Securities and Goldman Sachs Group, were counseled by Simpson Thacher & Bartlett.
Arthur J. Gallagher was counseled by Gibson, Dunn & Crutcher in a debt offering valued at $1 billion. Cleary Gottlieb Steen & Hamilton advised underwriters Barclays and BofA Securities. The Cleary Gottlieb team included partner Jorge Juantorena.
Cleary Gottlieb Steen & Hamilton has guided BofA Securities, Citigroup and Morgan Stanley in the underwriting of a debt offering worth $1 billion. The issuance was announced Oct. 30 by Horsham, Pennsylvania-based Bimbo Bakeries USA Inc. The Cleary Gottlieb team included partners Jorge Juantorena and Manuel Silva.
Raising Cane’s Restaurants was counseled by Sidley Austin in a debt offering valued at $500 million. The Sidley Austin team included partners Kelly Dybala and William Howell. Underwriters for the issuance, including JPMorgan Chase, were advised by a Simpson Thacher & Bartlett team that included partners John O’Connell and Arthur Robinson.
