US poised to step up its FCPA enforcement.
New regulatory requirements, coupled with an increasingly hostile, market led to a decline in M&A activity in the latter part of 2011, according to a Thomson Reuters governance, risk and compliance report.
The report, M&A Trends and Insights for Lawyers, reveals that deal activity fell in the second half of 2011 by 23.9 percent as the uncertain markets and declining stock prices took their toll on transactions.
In addition, the Thomson Reuters Accelus M&A Hostility Index (which tracks contentiousness in deal making) found that transactions took a longer time to complete in 2011, especially in the telecommunications industries, which faced regulatory hurdles and antitrust scrutiny. In order to fend off market uncertainty and stringent regulatory requirements, companies started integrating reserve break fees to protect transactions and help ensure proper due diligence was performed prior to striking a deal.
According to the report, 36 percent of SEC-filed US public M&A deals (valued at over $25 million) had reverse break fees in 2011, up from 25 percent in 2010. But the trend toward reverse break fees became positively rampant among private equity (PE) acquirers: roughly 78 percent of SEC-filed public M&A deals with a PE acquirer employed a reverse break fee in 2011, against 53 percent in 2010.
Regulatory and compliance requirements were a major concern for deal makers large and small in 2011. Antitrust concerns took the spotlight when AT&T's failed $39 billion attempt to acquire T-Mobile stood out for its reverse break fee technique, which was tied to regulatory approvals. The payment comprised a combination of cash, spectrum and roaming rights.
The Thomson Reuters study notes that deals of any size need to take compliance risks seriously for 2012. Companies will have to closely monitor their compliance programs and assess any potential FCPA risks, since the US is expect to step up its enforcement of the act later this year.
