To mark the forty-year anniversary of the Business Law Section’s Mergers & Acquisitions (“M&A”) Committee, Ann Beth Stebbins, one of the cochairs of the Committee’s Acquisitions of Public Companies Subcommittee, reflects on developments in public company M&A in the last forty years.
The Transformational Impact of the Revlon Decision
In October 1986, the Delaware Supreme Court issued its opinion in Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., defining the duties owed to shareholders when a board determines to sell a company. Revlon came on the heels of several seminal Delaware decisions in 1985, most notably Smith v. Van Gorkom and Unocal Corp. v. Mesa Petroleum Co., which focused on defensive measures a board could reasonably adopt to address perceived threats to corporate policy. The Revlon decision established a critical limitation on the board’s ability to implement defensive measures once the sale or breakup of a company is inevitable, with the board’s role shifting from defender of corporate policy to that of an auctioneer charged with securing the best price reasonably available for shareholders. Revlon imposes enhanced scrutiny on board conduct in a sales context, and directors must demonstrate that they acted to obtain the highest value reasonably available for shareholders.
The Revlon decision ushered in the modern era of M&A practice, with a focus on process design and board conduct. Following Revlon, market practice evolved to include competitive auctions, an increased reliance on financial advisers to identify interested buyers and assist in price negotiations, and procedural safeguards such as special committees to insulate a process from conflicts. Since Revlon, deal protections have become a focal point of merger agreement negotiations, with buyers pressing for terms that secure deal certainty while target boards must justify that deal protections do not impede competitive offers that could result in greater value for shareholders. Revlon also spawned a flood of fiduciary duty litigation focused on process and whether a board had satisfied its duty to obtain the highest value reasonably available for shareholders. The litigation landscape prompted more formalized board processes, as well as extensive disclosure of merger negotiations and board deliberations.
The Globalization of M&A Activity
Beginning in the 1990s, strategic buyers ramped up geographic expansion on a global scale through cross-border M&A. The privatization of state-owned assets and deregulation in sectors such as telecom, utilities, and airlines created more cross-border targets. Trade liberalization and regional integration, including the formation of the European Union, the North American Free Trade Agreement, and the Association of Southeast Asian Nations, reduced barriers for foreign buyers and liberalized inbound and outbound investment. Many companies pursued a multinational M&A strategy to achieve scale, global market access, local distribution channels, and supply chain diversification. Law firms and investment banks expanded their global capabilities to structure and negotiate multijurisdictional deals, which often involved complex legal, regulatory, and tax issues. Cross-border M&A activity has been cyclical during the period, reflecting macroeconomic conditions, interest rate and foreign exchange fluctuations, and geopolitical shifts. Deal activity in recent years has been influenced by government priorities, balancing cross-border investment with national interests.
The Regulatory Environment
Global regulatory regimes have become an important part of the M&A landscape. The rise of national security and foreign investment screening has been a significant trend over the past few decades. Governments across the globe have broadened the scope of reviews and are applying stricter approval standards, especially in sectors involving technology and personal data. The expansion of the Committee on Foreign Investment in the United States and the proliferation of similar international regimes have lengthened transaction approval timelines, imposed conditional remedies, and introduced deal uncertainty.
Antitrust scrutiny has also intensified. Following years of antitrust enforcement based on a “consumer welfare” framework, U.S. regulators adopted a more aggressive posture in the last decade, scrutinizing transactions in the technology sector, introducing new theories of competitive harm, and litigating to block transactions. The regulatory agencies have recalibrated their priorities under the Trump administration and are generally viewed as taking a more pragmatic approach to mergers; however, high-profile transactions may draw attention from politicians on the state and national levels. Disclosure obligations have increased dramatically, with filings requiring extensive document production, expanded narrative explanations, and granular line-item detail. Sophisticated merger control regimes have developed worldwide, and global cooperation has intensified, beginning with the centralization of EU merger control in the 1990s. Competition authorities routinely share information and coordinate challenges; however, differing timelines, remedies, and outcomes may complicate deal execution. Multijurisdictional planning and coordination have become essential to successful completion of a transaction.
The Rise of Private Equity
Private equity was a niche alternative asset class forty years ago. It is has grown to be a huge financial pool, fueled by investment from pension funds and sovereign wealth endowments. Private equity has become a driver of deal volume, and sponsors are active buyers of public companies in large take-private transactions, as well as carve-out sales from strategic sellers. From its genesis in the 1980s in highly leveraged hostile takeovers (e.g., KKR’s takeover of Nabisco), private equity has adopted an operational focus. The private equity playbook continues to feature debt financing, cost rationalization, and exit via a sale or initial public offering; however, the model has evolved from financial engineering to value creation, with private equity owners driving growth organically and through add-on acquisitions. Private equity sponsors continue to use leverage to finance their M&A activity; however, the sources of leverage have evolved to include private credit and direct lending, with covenant-lite debt available in certain cycles.
Expansion of Shareholder Activism
Activist hedge funds, with professional teams and dedicated capital, began appearing in the late 1990s and have become an important driver of M& A activity. It is now common practice for activists to publicly or privately push boards to initiate a sales process, break up a company, or spin off a business unit, employing diverse tactics such as board campaigns, shareholder proposals, and media efforts. Activists may advocate for transformational deals or divestment of noncore businesses to unlock value.
Installing directors aligned with its M&A strategies increases the likelihood of the activist’s desired transaction being approved and executed. The introduction of the universal proxy card, which allows shareholders to use a single ballot at a contested meeting to mix and match director candidates, has had the practical effect of lowering the cost for an activist to elect its nominees and increases the probability that the activist will win some board seats in furtherance of its agenda. Companies targeted by an activist often enter into settlement agreements that provide the activist with one or more board seats to avoid a costly proxy fight. Activists often seek the support of institutional investors, which are less likely to agitate on their own but wield significant influence because of their size and voting power.
