Legal Advisor Insights: Guiding Clients Through a Market Boom

Markets are unpredictable. Within the span of a few months boards and senior executives can pivot from mitigation planning through restructuring to revenue growth through strategic acquisitions. From capital markets to M&A, much of this market agility is powered in large part by the intellectual horsepower legal advisors provide their clients through various lenes risk assessment and due diligence. A few weeks ago, Datasite assembled a panel of legal experts to dissect current market conditions and what to expect in the months ahead. Here are three takeaways from the discussion:

1.     Cross-border M&A primed for a comeback

A record $1.3 trillion in deal activity was reported by Refinitiv for the first quarter of the year – sustaining last year’s impressive market rebound. Nested within that attention-grabbing top-line number is almost 45% of cross-border deals. A significant almost-return to historic averages after two consecutive years of decline driven by a confluence of deal drivers. This includes the simple fact that many dealmakers are anxious to invest having sat out transactions for much of 2020. For others, motivation stems from seemingly inevitable tax hikes within Europe and North America in the near future. Finally, government stimulus plans across the globe also deserve some credit for the market rebound. Ultimately, the return to form has been a welcome surprise for all. Indeed, more than half of our live audience identified the acceleration of deal volume as the most surprising market occurrence of the past six months.

2.     SPACs are more than a fad but volume will normalize

SPACs have dominated headlines for the past few months – with a story arc closely resembling a Hollywood prodigy experiencing overnight success that suddenly finds themself a target of the press with premature predictions of certain demise. In actuality, SPACs have been around for well over a decade and should remain an attractive option for some dealmakers – particularly those with pricing anxiety. However, SPACs are one option available on a continuum within capital markets for entities looking to go public. There will be a natural inflection point where markets will favor other vehicles like traditional underwritten IPOs or direct listings. The latter particularly attractive for operating companies there are better known and don’t need capital. But, SPACs are here to stay for the foreseeable future – even as SEC scrutiny grows.

3.     It’s less about a seller’s market and more about a good company market

With valuations at record levels, a common refrain has been that we are firmly entrenched within a seller’s market. However, our panel asserts the more accurate narrative is the largest beneficiaries of the current market are those with the most attractive assets. Good companies – those with brand pedigree, breakthrough technologies, and strong customer affinity – are the ones commanding well-earned prices. Additionally, with ongoing COVID-related uncertainty lingering across regions – something our live audience identifies as likely to be the largest deal blocker for the year – expect to see investor bias towards more established markets.

Buy-side or sell-side, it’s a singularly exciting and rewarding time to be a legal dealmaker. From an excess of dry powder in private equity to the diversity of deal types under consideration across corporates, legal advisors are needed by their clients more than ever to successfully ride this wave of momentum.

Click here to listen to the full recording of our Legal Advisor Insights: M&A Market Outlook CLE webinar.