July 2017, Issue 64. Strategic vs. Sponsor Activity. Crossborder Activity. U.S. Deals by Industry. U.S. Public Mergers

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1 July 2017, Issue 64 M&A activity in June 2017 struggled to build upon any recent favorable indicators. Globally, total deal volume by dollar value decreased from volume by 3.5% to $ billion, and the number of deals decreased by 5.8% to 3,116. The market s downward trend was more pronounced in the U.S., where total deal volume by dollar value decreased over the same period by 8.1% to $94.44 billion, and the number of deals decreased by 21.7% to 662. Strategic vs. Sponsor Activity Sponsor-related activity, both globally and in the U.S., slipped from its strong performance in May, decreasing in total dollar value by 3.5% to $78.32 billion and 26.8% to $40.31 billion, respectively, and in number of deals by 27.3% to 269 and 42.3% to 94, respectively. Global strategic activity experienced similar declines, with deal volume as measured by dollar value decreasing by 3.5% to $ billion and number of deals decreasing by 3.1% to 2,847. Although the number of U.S. strategic deals decreased by 16.7% to 568, total dollar value increased by 13.5% to $54.13 billion. Figure 1 and Annex Figures 1A-4A. Crossborder Activity Global crossborder activity decreased both in total dollar value (by 20.0% to $75.29 billion) and in number of deals (by 3.2% to 757). In the U.S., although inbound activity decreased both in total dollar value (by 44.8% to $12.32 billion) and in number of deals (by 6.8% to 123), outbound activity increased in total dollar value by 95.8% to $13.16 billion and number of deals by 34.0% to 138. Figure 1 and Annex Figures 5A-7A. In U.S. outbound activity, Germany led by total dollar value in June 2017 ($6.79 billion), while Canada held onto its lead in number of deals (27). Germany overtook the U.K. s briefly-held position as the 12-month leader in outbound deal volume ($58.08 billion), although the U.K. maintained its 12-month lead in number of deals (312). As for U.S. inbound activity, Canada was the leading country of origin by total dollar value for June ($3.00 billion), while the U.K. maintained its 12-month lead ($ billion). Canada was the leading country for inbound number of deals, both in June (31) and over the last 12 months (409). Figure 3. U.S. Deals by Industry Retail was the most active target industry in the U.S. by dollar value ($19.51 billion, driven primarily by Amazon.com, Inc. s pending acquisition of Whole Foods Market, Inc. for $13.43 billion). Computers & Electronics remained the most active target industry in the U.S. by number of deals in June (169), and maintained its position as the most active target industry for the last 12 months, as measured by both dollar value ($ billion) and number of deals (2,550). Figures 2 and 5. U.S. Public Mergers Turning to U.S. public merger terms, average target break fees and reverse break fees neared their 12-month averages, and were 3.4% and 5.7%, respectively, for the month of June Figures 6 and 7. The use of cash consideration in June (75.0%) was above the 12-month average (62.9%). Figure 9. The incidence of tender offers as a percentage of U.S. public mergers (18.8%) was below the 12-month average (21.5%). Figure 11. Finally, hostile offers were reported in 5.6% of U.S. public mergers in (as compared to the 12-month average of 9.4%). Figure 12. 1

2 M&A Activity Figure 1 Figure 2 - Most Active U.S. Target Industries 3 June 2017 Global +/- From Prior Month U.S. +/- From Prior Month June 2017 Total Volume (US$B) (9.52) (8.36) No. of deals 3,116 (192) 662 (183) Avg. value of deals (US$mil) (9.6) Avg. deal multiple x (0.3) 13.9x 1.3 Strategic Transactions Volume (US$B) (6.71) No. of deals 2,847 (91) 568 (114) Avg. value of deals (US$mil) (9.5) Avg. deal multiple x (0.4) 12.9x 2.0 Sponsor-Related Transactions Volume (US$B) (2.81) (14.79) No. of deals 269 (101) 94 (69) Avg. value of deals (US$mil) ,185.7 (38.8) Avg. deal multiple x x 1.1 Crossborder Transactions 2 Retail Real Estate/Property Oil & Gas Healthcare Consumer Products $19.51 $14.75 $14.32 $10.98 $9.28 $100 $200 $300 $400 Last 12 Months Computers & Electronics $ Oil & Gas $ Healthcare $ Utility & Energy $ Leisure & Recreation $ $100 $200 $300 $400 June 2017 Volume (US$B) (18.88) No. of deals 757 (25) Avg. value of deals (US$mil) (52.6) (10.00) 6.44 (9) 35 (129.5) 9.1 Computers & Electronics 169 Professional Services 68 Healthcare 65 Finance 39 Insurance ,000 1,500 2,000 2,500 3,000 Last 12 Months Avg. deal multiple 1 9.8x (1.0) 16.9x 8.6x 6.3 (2.1) Computers & Electronics Professional Services 1,136 2,550 Figures 1-3 were compiled using data from Dealogic, and are for the broader M&A market, including mergers of any value involving public and/or private entities. Figures 4 and 5 were compiled using data from FactSet MergerMetrics, and are limited to mergers involving public U.S. targets announced during the period indicated and valued at $100 million or higher regardless of whether a definitive merger agreement was reached and filed or withdrawn. All data is as of July 10, 2017 unless otherwise specified. Last 12 Months data is for the period from July 2016 to June 2017 inclusive. Data obtained from Dealogic and FactSet MergerMetrics has not been reviewed for accuracy by Paul, Weiss. Healthcare 988 Finance 551 Oil & Gas ,000 1,500 2,000 2,500 3,000 1 Ratio of enterprise value to EBITDA, trailing 12 months. This statistic is calculated using a smaller subset of deals for which this data is available. 2 Global crossborder transactions are those where the acquirer and the target have different nationalities. Nationality is based on where a company has either its headquarters or a majority of its operations. U.S. crossborder transactions are those transactions where the acquirer and the target have different nationalities and either the acquirer ( ) or the target ( ) has a U.S. nationality. 3 Industries categories are determined and named by Dealogic. 2

3 M&A Activity (Continued) Figure 3 - Top 5 Countries of Origin or Destination for U.S. Crossborder Transactions U.S. Crossborder Transactions for June 2017 U.S. Crossborder Transactions for the Last 12 Months Canada $3.00 $ $2.42 Canada $89.98 Netherlands $2.10 China $46.88 Singapore $1.72 Japan $45.83 China $1.00 France $22.43 $30 $60 $90 $120 $150 Canada 31 $30 $60 $90 $120 $150 Canada 409 Japan 15 Japan China 12 China 146 France 9 Germany U.S. Crossborder Transactions for June U.S. Crossborder Transactions for the Last 12 Months Germany $6.79 Germany $58.08 Switzerland $3.44 $53.54 Canada $1.33 Netherlands $ Switzerland $39.57 Netherlands.28 $30 $60 $90 $120 $150 Israel $16.78 $30 $60 $90 $120 $150 Canada Canada 291 Germany 18 Germany 119 Australia 8 Australia 97 Netherlands 7 Brazil & France Each of Brazil and France was the country of destination for 61 transactions in the last 12 months. 3

4 M&A Activity (Continued) Figure 4 - Average Value of Announced U.S. Public Mergers (in US$mil) $45,000 $40,000 $39,975.8 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $7,570.1 $8,095.5 $8,655.8 $6,674.4 $5,526.2 $13,404.5 $4,338.2 $5,000 $2,927.7 $2,085.5 $1,427.0 $2,134.1 $2,829.2 $2,736.7 $1,014.3 $1,585.0 $2,405.7 $1,041.0 $8,104.8 $3,168.1 $7,031.7 $3,933.5 $2,305.7 $1,673.2 Average Value of Five Largest U.S. Public Mergers Average Value of All U.S. Public Mergers Figure 5 - Five Largest U.S. Public Mergers June 2017 Equity Value (US$B) Whole Foods Market, Inc. ~ Amazon.com, Inc. (June 16, 2017) $13.43 Staples, Inc. ~ Sycamore Partners Management LP (June 28, 2017) Rice Energy, Inc. ~ EQT Corp. (June 19, 2017) $6.70 $5.58 DuPont Fabros Technology, Inc. ~ Digital Realty Trust, Inc. (June 9, 2017) PAREXEL International Corp. ~ Pamplona Capital Management LLP (June 19, 2017) $4.95 $4.50 $20 $40 $60 $80 $100 Last 12 Months Equity Value (US$B) Time Warner Inc. ~ AT&T Inc. (October 22, 2016) $83.37 Reynolds American Inc. ~ British American Tobacco Plc (October 21, 2016) $49.22 Baker Hughes, Inc. ~ General Electric Co. (October 31, 2016) Spectra Energy Corp ~ Enbridge, Inc. (September 6, 2016) $35.90 $28.33 Level 3 Communications, Inc. ~ CenturyLink, Inc. (October 31, 2016) $25.27 $20 $40 $60 $80 $100 4

5 M&A Activity (Continued) M&A Terms Figure 6 - Average Break Fees as % of Equity Value 5 12% (US$mil) $15,000 $13, $10,000 6% $5,000 $3,248.5 $3,029.1 $2,888.2 $2,250.3 $2,488.3 $1,819.8 $1,039.1 $1,184.3 $3,168.1 $1,803.2 $2,555.6 Avg. Target Break Fee as % of Equity Value Average Value of All U.S. Public Mergers with Definitive Agreements Avg. Reverse Break Fee as % of Equity Value Figure 7 - Average Break Fees as % of Equity Value June 2017 Last 12 Months Target Break Fee for All Mergers June 2017 Last 12 Months Reverse Break Fee for All Mergers Reverse Break Fee for Mergers Involving Financial Buyers Reverse Break Fee for Mergers Involving Strategic Buyers Figures 6-12 were compiled using data from FactSet MergerMetrics, and are limited to select mergers involving public U.S. targets announced during the period indicated, valued at $100 million or higher and for which a definitive merger agreement was reached and filed (unless otherwise indicated). Data obtained from FactSet MergerMetrics has not been reviewed for accuracy by Paul, Weiss. Figure 8 - U.S. Public Merger Go-Shop Provisions June 2017 Last 12 Months % of Mergers with Go-Shops % of Mergers Involving Financial Buyers with Go-Shops % of Mergers Involving Strategic Buyers with Go-Shops Avg. Go-Shop Window (in Days) for All N/A 35.1 Mergers with Go-Shops 7 Avg. Go-Shop Window (in Days) for Mergers Involving Financial Buyers with Go-Shops 8 Avg. Go-Shop Window (in Days) for Mergers Involving Strategic Buyers with Go-Shops 9 N/A 35.9 N/A Based on the highest target break fees and reverse break fees payable in a particular deal. 6 Three transactions in June 2017 involving a strategic buyer had a reverse break fee. 7 Zero transactions in June 2017 had a go-shop provision. 8 Zero transactions in June 2017 involving a financial buyer had a go-shop provision. 9 Zero transactions in June 2017 involving a strategic buyer had a go-shop provision. 5

6 Figure 9 - Form of Consideration as % of U.S. Public Mergers % M&A Activity (Continued) Figure 10 - % of Partial and All Stock Deals That Have a Fixed Exchange Ratio June Last 12 Months % 75.0% Figure 11 - Tender Offers as % of U.S. Public Mergers June % 12.4% Cash Only Stock Only Cash & Stock Only Choice (Cash Election) Other June Last 12 Months 21.5 Figure 12 - Hostile/Unsolicited Offers as % of U.S. Public Mergers 11 June Last 12 Months % 18.8% 10 Due to rounding, percentages may not add up to 100%. 11 This data includes both announced transactions for which a definitive merger agreement was reached and filed and those for which a definitive merger agreement was never reached and filed (including withdrawn transactions). Last 12 Months Paul, Weiss is a leading law firm serving the largest publicly and privately held corporations and financial institutions in the United States and throughout the world. Our firm is widely recognized for achieving an unparalleled record of success for our clients, both in their bet-the-company litigations and their most critical strategic transactions. We are keenly aware of the extraordinary challenges and opportunities facing national and global economies and are committed to serving our clients short- and long-term goals. Our Mergers & Acquisitions Practice The Paul, Weiss M&A Group consists of more than 30 partners and over 100 counsel and associates based in New York, Washington, Wilmington, London, Toronto, Tokyo, Hong Kong and Beijing. The firm s Corporate Department consists of more than 60 partners and over 200 counsel and associates. Our M&A Group is among the most experienced and active in the world. We represent publicly traded and privately held companies, leading private equity firms, financial advisors, and other financial institutions and investors in their most important mergers and acquisitions, joint ventures and other strategic transactions. Our expertise advising corporations and private investors in a broad range of sophisticated transactions enables us to identify new opportunities for our clients to realize value. We have particular experience in guiding clients as they engage in proxy battles, company-altering and market consolidating transactions or capital markets transactions. Recent highlights include advising: Time Warner Cable in its $79 billion merger with Charter Communications; Qualcomm in its approximately $47 billion pending acquisition of NXP Semiconductors; Agrium in its $36 billion pending merger of equals with Potash Corp. of Saskatchewan; funds affiliated with Apollo Global Management and Protection 1 in their $15 billion acquisition of ADT Corporation; Alere in its $8 billion pending acquisition by Abbott Laboratories; ARIAD Pharmaceuticals in its approximately $5.2 billion acquisition by Takeda Pharmaceutical Company; Air Methods Corporation in its $2.5 billion acquisition by affiliates of American Securities; Kate Spade & Company in its $2.4 billion acquisition by Coach; and the Board of Directors of Xerox in its separation of the company into two public companies. 6

7 This publication is not intended to provide legal advice, and no legal or business decisions should be based on its content. Questions concerning issues addressed in this memorandum should be directed to: Matthew W. Abbott Partner New York Scott A. Barshay Partner New York Angelo Bonvino Partner New York Ariel J. Deckelbaum Partner New York Jeffrey D. Marell Partner New York Counsel Frances F. Mi, associates Ryan D. Blicher, Edy Glozman, Yae Na Woo and Michael N. Wysolmerski and law clerk David Okada contributed to this publication. Our M&A Partners Matthew W. Abbott Adam M. Givertz Brian C. Lavin Tarun M. Stewart Edward T. Ackerman Neil Goldman Jeffrey D. Marell Steven J. Williams Scott A. Barshay Bruce A. Gutenplan Alvaro Membrillera Betty Yap Angelo Bonvino Justin G. Hamill Judie Ng Shortell Kaye N. Yoshino Jeanette K. Chan David M. Klein Kelley D. Parker Tong Yu Ellen N. Ching David K. Lakhdhir Carl L. Reisner Taurie M. Zeitzer Ariel J. Deckelbaum Stephen P. Lamb Kenneth M. Schneider Ross A. Fieldston John E. Lange Robert B. Schumer Brian P. Finnegan Xiaoyu Greg Liu John M. Scott NEW YORK BEIJING HONG KONG LONDON TOKYO TORONTO WASHINGTON, D.C. WILMINGTON 2017 Paul, Weiss, Rifkind, Wharton & Garrison LLP. In some jurisdictions, this publication may be considered attorney advertising. Past representations are no guarantee of future outcomes. PAULWEISS.COM 7

8 A N N E X M&A Activity 12-Month Trends Figure 1A - U.S. Deal Volume (US$B) $400 $ $320 $240 $ $160 $80 $ $ $ $72.45 $73.16 $ $41.80 $37.72 $18.60 $ $ $ $ $88.14 $98.77 $ $94.44 $69.65 $55.10 $80.19 $87.02 $54.13 $56.43 $73.97 $46.11 $39.05 $38.08 $47.70 $31.71 $32.34 $40.31 $24.81 $23.54 $21.03 Strategic Sponsor Total Figure 2A - Global Deal Volume (US$B) $600 $ $500 $400 $300 $200 $100 $ $ $ $ $ $ $ $ $ $388 $ $ $ $ $ $ $ $ $ $ $ $ $ $69.97 $52.55 $50.42 $79.52 $72.07 $80.35 $47.20 $43.02 $62.56 $52.88 $81.14 $78.32 Strategic Sponsor Total A-8

9 A N N E X Figure 3A - U.S. Number of Deals 1, Strategic Sponsor Total Figure 4A - Global Number of Deals 4,000 3,710 3,200 3,069 3,035 3,055 2,892 3,388 3,208 3,275 3,057 3,359 2,961 3,308 3,116 2,400 2,722 2,720 2,725 2,548 3,037 2,935 2,939 2,711 2,646 2,938 2,847 1, Strategic Sponsor Total A-9

10 A N N E X Figure 5A - U.S. Crossborder Transactions $120 $100 $80 $60 $40 $ $27.06 $26.83 $66.20 $ $28.55 $24.47 $23.15 $38.11 $22.24 $27.19 $22.32 $ Figure 6A - U.S. Crossborder Transactions $100 $80 $60 $ $20 $10.70 $10.38 $20.58 $60.64 $5.36 $81.05 $37.87 $11.96 $23.94 $7.79 $6.72 $ Figure 7A - Global Crossborder Transactions $250 $ $150 $ $50 $ $62.82 $ $ $75.67 $ $ $72 $97.91 $79.69 $94.18 $ A-10