Adam O. Emmerich and Robin Panovka are Partners at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton memorandum by Mr. Emmerich, Mr. Panovka, Jodi J. Schwartz, David A. Katz, Ilene Knable Gotts, Andrew J. Nussbaum and colleagues at Wachtell Lipton. Related research from the Program on Corporate Governance includes Are M&A Contract Clauses Value Relevant to Target and Bidder Shareholders? (discussed on the Forum here) by John C. Coates, Darius Palia, and Ge Wu; and The New Look of Deal Protection (discussed on the Forum here) by Fernan Restrepo and Guhan Subramanian.
After a record-shattering year for M&A in 2021, a crescendo that built over a decade, powered by unique pandemic conditions, 2022 was, statistically, a reversion to the mean. Worldwide M&A volume was $3.6 trillion in 2022, as against $6.2 trillion in 2021 and an average of $4.3 trillion annually over the prior ten years (in 2022 dollars). Average, however, 2022 was anything but. Russia’s invasion of Ukraine sparked the largest armed conflict in Europe since World War II, creating a mass humanitarian crisis in Ukraine and the region, multiplying food and energy insecurity around the world, and exacerbating unresolved supply chain disruption caused by the coronavirus pandemic. Fiscal stimulus and adaptive monetary policies that supported growth during pandemic lockdowns were followed by inflation and hawkish policy responses, reversing a nearly 40-year trend of declining interest rates.
While M&A was not isolated from all of this upheaval, cross-border M&A continued to be attractive to dealmakers. Cross-border deals were 32% ($1.1 trillion) of global M&A in 2022, consistent with the average proportion over the prior ten years (35%). Acquisitions of U.S. companies by non-U.S. acquirors were $217 billion in transaction volume and represented 6% of 2022 global M&A volume and 19% of 2022 cross-border M&A volume. Canadian, British, Australian, Singaporean and Japanese acquirors accounted for 50% of the volume of cross border acquisitions of U.S. targets, while acquirors from China, India and other emerging economies accounted for about 8%.
We expect cross-border transactions into the U.S. to continue to offer compelling opportunities in 2023. Transacting parties will do better if they are well-prepared for the cultural, political, regulatory and technical complexity inherent in cross-border deals. Advance preparation, strategic implementation and deal structures calibrated to likely concerns are critically important. Now, more than ever, thoughtful regulatory strategy and creative financing approaches deserve special focus.
