United States: Looking Ahead: The State Of M&A In 2015


Companies are often spurred to engage in mergers and acquisitions (M&A) in the hopes of creating growth, unlocking shareholder value, revising business strategies, and/or better coordinating resources. These efforts are affected by ever-changing political and economic factors. In the sections below, we highlight some of the factors we believe will impact M&A in 2015.

Market Outlook

Though the global economy is not as robust as it was in 2006, generally the world economy has found an equilibrium and may be considered stable. According to the International Monetary Fund, the global economy is forecasted to grow 3.3 percent in 2014 and 3.8 percent in 2015.1 It should be noted that economic growth is not evenly distributed throughout the globe. The numbers reflect that the global economy is recovering from the Great Recession but hitting a few speed bumps in certain regions.

The United States

The economy of the United States, for one, has picked up steam and is showing progress. In the first half of 2014, 70 percent of companies in the S&P 500 beat earnings estimates. As of the third quarter of 2014, the Nasdaq Composite and the S&P 500 were up 7.59 percent and 8.34 percent, respectively. 2 Furthermore, in the first eight months of 2014, the US economy, on average, added 215,000 jobs. This number represents an increase of more than 20,000 jobs per month over the average monthly employment gains posted by the US economy in 2013. As of August 2014, the unemployment rate hovered at 6.1 percent, down from the recession high of 10 percent in October of 2009. It is anticipated that the job growth occurring in 2014 will also reduce the number of underemployed workers and the number of individuals who exit the workforce prior than they planned due to the unavailability of suitable employment opportunities after the Great Recession. 3

Other Economies

On the other hand, China's economy is expected to grow at a rate of about 7.3 percent this year, representing the slowest growth rate in five years. 4 Also, perhaps as a result of the uncertainty and tension between the Ukraine and Russia, Europe is stagnating. France, Spain, and Italy endure unemployment rates in excess of 10 percent. 5 Germany, the largest economy in the Eurozone, is predicting meager growth of 1.2 percent for the year and its economy contracted in the second quarter of 2014. 6

M&A Activity

Despite the uneven global recovery, according to Bloomberg, the third quarter of 2014 enjoyed the highest third quarter M&A deal volume results in the past seven years, with deal volume on a global basis reaching $888.9 billion. The Western Hemisphere accounted for more than half of that deal volume. 7 In addition, the number of deals valued at over $10 billion reached twelve. That represents a 300 percent increase in such transactions over the prior year. 8 As one New York Times article noted earlier this year, "Shareholder beware: M.&A. mania is back." 9

The calendar year 2014 has been characterized by less overall number of transactions but an increase in large cap deals with huge deal values. 10 In fact, global M&A reached seven-year transaction value highs in the second quarter of 2014, with the United States accounting for half of the global volume based on deal value. 11 For example, Comcast's acquisition of Time Warner Cable, a deal announced on February 13, 2014, was valued at $69.8 billion. Also, AT&T Inc.'s acquisition of DirectTV Group Inc., announced on May 18, 2014, was valued at $67.1 billion. 12 These types of mega deals increase market confidence and should result in additional M&A activity. 13


For 2015 we expect a continued increase in global M&A activity. At least in the United States, such M&A activity will not be spurred by tax considerations (which are discussed below), but will instead be led by a surge of middle market deals (with deal values below $1 billion) focused on synergistic acquisitions. 14 According to a recent survey conducted by EY, "the number of executives that view the global economy as stable has almost doubled in the past 12 months." Despite conflicts in the Middle East, tensions between Russia and the Ukraine, and Ebola scares in Africa as well as the United States, a full 40 percent of these executives were interested in pursuing an M&A transaction within the next twelve months. More than 80 percent of the transactions these executives contemplated in the next twelve months were expected to have a deal value of $250 million or less. The majority of these deals are meant to enhance the core business of the acquiring company or to increase the products and services provided by the acquiring company pursuant to the acquisition of a complementary business. 15

Tempering the Surge in Tax-Driven Deals

Given the relative stability of the global and US economies, for 2015 we are more focused on the impact of legislative and regulatory action on M&A activity.

One recent regulatory action which we expect to have a chilling effect on M&A activity is a recent notice published by the United States Department of the Treasury (US Treasury) and the Internal Revenue Service (IRS). That notice points to the possibility that the US government may enact legislation or regulations reducing the tax benefits of tax inversions, a type of M&A transaction. In a tax inversion, concurrently with a merger or acquisition of a non-US company, a US-based purchaser redomiciles to the jurisdiction of the non-US target company where, typically, a lower corporate tax rate applies. After a tax inversion, only profits earned in the United States are subject to the US corporate income tax rate. Generally, the United States imposes a 35 percent corporate federal tax rate on income earned by US companies within the United States and abroad, though, with respect to non-US income, a US company can delay paying taxes on such income until such income is paid or repatriated into the United States as a dividend or distribution to the US company. Until recently, tax inversions were a popular part of global M&A activity because such transactions usually translated into substantial and ongoing tax savings for the purchaser.

Since the first tax inversion was consummated in the early 1980s, the IRS has introduced various rounds of regulation to discourage US-based companies from re-incorporating in a different jurisdiction. Beginning in 2004, companies desiring to invert and reincorporate in a non-US jurisdiction were required to have "substantial business activity" in the country of reincorporation. Thereafter, the IRS:

1. Determined that "substantial business activity" generally required a company to have at least 25 percent of its assets, income and employees in the new non-US jurisdiction and

2. Required that the former owners of the US entity own less than 80 percent of the new non-US entity. 16

The latest salvo against tax inversions came in the form of a notice published by the US Treasury and the IRS, which aims to, among other things, prevent

1. Inverted companies from using "creative" loans to access cash earned by a foreign subsidiary without paying taxes on such cash,

2. The sale of shares in a foreign subsidiary with substantial earnings from a US entity to a non-US entity to avoid paying taxes on such cash, and

3. The transfer of assets located in the US to a foreign company to avoid paying taxes on such assets.

In addition, the notice makes it harder for US entities to consummate a tax inversion by strengthening the requirement that the former shareholders of the US company own less than 80 percent of the non-US surviving entity. 17 If the former shareholders of the US company own at least 60 percent but less than 80 percent of the non-US surviving entity, then, although the United States will acknowledge that the surviving entity is not a US entity, such entity may be subject to other unfavorable tax consequences. 18 In each case, the new stricter guidelines apply to tax inversions closing on or after September 22, 2014.

The chilling effect of the notice on M&A activity was felt immediately. For one, the merger of AbbVie Inc., a US company, and Shire PLC, a company based in the United Kingdom, was terminated in October of 2014 after the board of directors of AbbVie determined that the US Treasury's notice and new interpretation of US tax rules eliminated tax savings related to the proposed tax inversion. 19 AbbVie's chief executive officer stated: "The Company's decision was based upon its assessment of the September 22, 2014 notice issued by the U.S. Department of Treasury, which reinterpreted longstanding tax principles in a uniquely selective manner designed specifically to destroy the financial benefits of these types of transactions. The notice introduced an unacceptable level of risk and uncertainty given the magnitude of the proposed changes and the stated intention of the Department of Treasury to continue to revise tax principles to further impact such transactions." AbbVie agreed to pay Shire a $1.64 billion breakup fee. Other deals have also stalled. 20

The US Treasury's press release also indicated that additional regulatory action may be forthcoming. Specifically, the notice also included a quote from the Secretary of the Treasury that highlighted the fact that M&A transactions aimed at reducing the tax burden on US-based companies will be facing much tougher agency scrutiny: "Treasury will continue to review a broad range of authorities for further anti-inversion measures as part of our continued work to close loopholes that allow some taxpayers to avoid paying their fair share." 21

Delaware Amendments to the Delaware General Corporation Law

Not all legislative developments are expected to dampen M&A activity. Recently, Delaware enacted several changes to the Delaware General Corporation Law (DGCL) and the Delaware Code. These amendments are generally expected to be positive developments for M&A activity in the United States. In addition, the amendments have the cumulative effect of ensuring that Delaware stays at the vanguard of corporate innovation and remains the venue of choice for companies formed or incorporated in the United States. 22

To view the full report please click here.


1 INT'L MONETARY FUND. WORLD ECONOMIC OUTLOOK OCTOBER 2014 - LEGACIES, CLOUDS AND UNCERTAINTIES (2014), available at http://www.imf.org/external/pubs/ft/weo/2014/02/pdf/text.pdf .

2 T. Rowe Price, Third Quarter 2014 Market Wrap-Up, T.ROWEPRICE, http://individual.troweprice.com/public/Retail/Planning-&-Research/T.-Rowe-Price-Insights/MarketAnalysis/Quarterly-Wrap-Ups (last visited Dec. 10, 2014).

3 Dr. Patricia Bukley, United States Back on Track after First-quarter Detour , DELOITTE UNIVERSITY PRESS (Oct. 21, 2014), http://dupress.com/articles/global-economic-outlookq4-2014-united-states/.

4 See China's economic growth falls to lowest in 5 years, ASSOCIATED PRESS. (Oct. 21, 2014), http://www.theguardian.com/business/2014/oct/21/chinas-economic-growth-falls-to-lowest-in-5-years.

5 Catherine Bosley, Europe's Glacial Growth Lowers Prospects for Job Seekers, BLOOMBERG (Oct. 28, 2014), http://www.bloomberg.com/news/2014-10-28/europe-s-glacial-growthlowers-prospects-for-doubting-jobseekers.html.

6 Barbara Miller, German economy could lead Europe back into recession, ABC (Oct. 28, 2014), http://www.abc.net.au/news/2014-10-28/german-economy-could-lead-europe-backinto-recession/5847416 . See also Dr. Alexander Borsch, Eurozone Recovery stalled, DELOITTE UNIVERSITY PRESS (Oct. 21, 2014), http://dupress.com/articles/global-economic-outlook-q4-2014-eurozone/.

7 BLOOMBERG, GLOBAL M&AMARKET REVIEW FINANCIAL RANKINGS 1ST 3Q 2014, available at http://www.bloomberg.com/professional/content/uploads/sites/2/2014/10/Bloomberg-3Q-2014-MA-Financial-Rankings.pdf.

8 Id.

9 Jeff Sommer, Merger Fever Can be a Menace for Shareholders, N.Y. TIMES (Jun. 21, 2014), http://www.nytimes.com/2014/06/22/your-money/merger-fever-can-be-a-menace-forshareholders.html?_r=0 .

10 See Alexa Davis, No Slowdown in Sight for 2014's M&A Frenzy, FORBES (Jun. 24, 2014), http://www.forbes.com/sites/alexadavis/2014/06/24/no-slowdown-in-sight-for-2014s-mafrenzy/.

11 Bloomberg Global M&A Market Review Financial Rankings 1H 2014.

12 2014's Biggest Announced Mergers and Acquisitions,: FORBES, http://www.forbes.com/pictures/gfhd45fkk/comcast-time-warner-cable/ (last visited Nov. 23, 2014).

13 Global Capital Confidence Barometer, October 2014, 11th Edition, EY http://www.ey.com/GL/en/Services/Transactions/EY-capital-confidence-barometer-m-a-outlook?gclid=CJDE8-fBxcECFQMT7Aoda2gAQw  (last visited Nov. 20, 2014).

14 Id.

15 See Id.

16 David Gelles, New Corporate Tax Shelter: A Merger Abroad, N.Y. TIMES (Oct. 8, 2013), http://dealbook.nytimes.com/2013/10/08/to-cut-corporate-taxes-a-merger-abroad-and-a-newhome/?_php=true&_type=blogs&_r=0.

17 Fact Sheet: Treasury Actions to Rein in Corporate Tax Inversions, U.S. DEP'T TREAS. (Sept. 22, 2014), http://www.treasury.gov/press-center/press-releases/Pages/jl2645.aspx.

18 See Gelles, supra note 16.

19 See Announcement of Termination of Proposed AbbVie and Shire Transaction, ABBVIE (Oct. 20, 2014), http://abbvie.mediaroom.com/index.php?s=20295&item=122549.

20 Factbox: Another U.S. tax 'inversion' implodes, pending deals dwindle, REUTERS (Oct. 24, 2014), http://www.reuters.com/article/2014/10/24/us-usa-tax-pending-inversions-idUSKCN0ID1VR20141024.

21 Treasury Announces First Steps to Reduce Tax Benefits of Corporate Inversions, U.S.DEP'T TREAS. (Sept. 22, 2014), http://www.treasury.gov/press-center/press-releases/Pages/jl2647.aspx .

22 According to the Division of Corporations of the Secretary of State of the State of Delaware, over 50 percent of US publicly traded companies and 64 percent of Fortune 500 companies are incorporated in Delaware.

Previously published by Thomson Reuters/Aspatore

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions