Despite political and economic uncertainties, markets and deal activity were resilient in 2019, and strong fundamentals remain in place heading into 2020. Companies continue to face a challenging litigation and enforcement environment. In the U.S., that increasingly includes a patchwork of state regulations, and regulatory agencies around the globe are adopting a more proactive regulatory enforcement posture and strengthening their ability to scrutinize transactions and industries. Our annual Insights publication provides our collective thoughts on the corporate, litigation and regulatory developments most likely to impact clients in the year ahead.
Corporate
Stay Calm and Carry On: Strong 2019 US M&A Market Supports Optimism for 2020, Though Headwinds Persist
Despite substantial political and economic turmoil, the U.S. M&A market remained strong in 2019. The fundamentals support optimism for 2020, though headwinds could dampen activity.
Optimism for UK M&A and IPOs as New Decade Begins
As a new decade begins and the political situation in the U.K. begins to settle, market participants have several reasons for optimism regarding the outlook for M&A.
Private, Pre-IPO Investments Continue To Gain Influence for Companies Looking To Go Public
The ultimate goal for a new company and its founders has long been an initial public offering. In recent years, however, late-stage private financing in advance of, or in conjunction with, a traditional IPO has become an increasingly attractive option, for both issuers and investors.
Strong Finish to 2019 Offers Promising 2020 for US and European High-Yield Markets
The U.S. and European high-yield markets ended 2019 on a high note, and an influx in M&A supply and strong fundamentals have generated optimism for 2020.
Hong Kong Stock Exchange Poised To List New Economy Companies Trading Abroad
The successful completion of the first deal under a new secondary-listing regime may spark a new wave of secondary listings in Hong Kong of Chinese new economy companies. For well-known technology giants, the potential to penetrate the mainland Chinese markets via the Shanghai and Shenzhen Stock Connect programs will be a powerful incentive to pursue a secondary listing in Hong Kong.
US Corporate Governance: From the Frying Pan Into the Fire?
Three accelerating trends continue to have outsize influence on corporate governance: the dismantling of structural provisions perceived to insulate directors from accountability; a more thorough inquiry by shareholders into board composition; and the growing focus on environmental, social and governance (ESG) matters.
As Shareholder Activism Grows in Japan, New Amendment Places Limits on Foreign Investors
A recent amendment to the Foreign Exchange and Foreign Trade Act, which regulates foreign investments in Japanese businesses, is likely to have a substantial impact on activist investors and certain institutional investors, in particular Chinese state-backed institutions.
A Look at 2019 Court Decisions That May Shape Restructuring Issues in the Year Ahead
A series of decisions over the past year — on issues such as make-whole premiums, intercreditor agreements, backstops for rights offerings and nonconsensual third-party releases — will likely have a significant impact in 2020 on parties involved in bankruptcy proceedings.
Restructuring Market Trends
Corporate Chapter 11 filings in the United States remained relatively low in 2019 compared to the peak reached in 2009. Most of the year's high-profile filings involved companies from the energy, retail and health care industries. There could be an uptick in restructuring activity if trends in record-high corporate debt levels continue amid a slowdown in the economy.
New Trends Emerge for ‘Consensual’ Third-Party Releases in the Southern District of New York and District of Delaware
A recent survey of decisions from the Southern District of New York and the District of Delaware bankruptcy courts reveals a wide range of views regarding the nature and extent of “consensual” third-party releases that may be appropriately approved. The evolving views and lack of uniformity have resulted in uncertainty for parties regarding this key issue.
Valuation Challenges for Fintechs Highlight Legal Considerations in ‘Down Rounds’
The potential for declining values of fintech companies raises the specter of "down rounds," in which money is raised at valuations lower than prior financing rounds, thereby diluting the value of the earlier shares. Such financings raise legal issues for both investors, new and existing, and the companies themselves.
Litigation / Controversy
2019-20 Supreme Court Update
The Supreme Court’s 2019-20 term is receiving substantial attention for cases involving signature initiatives of President Donald Trump’s administration. But the Court also maintains an extensive docket directly relevant to the business community, including important disputes concerning workplace discrimination, challenges to agency enforcement, copyright law and stock-drop litigation.
Securities Class Action Filings Continue Record Pace
With more than 400 securities class actions filed in federal courts for the third consecutive year, the threat of litigation remains high for public companies, with trends such as event-driven litigations and increased state court filings impacting the securities litigation landscape in meaningful ways for defendants. Against this backdrop, the impact of several recently decided and one pending U.S. Supreme Court cases will become more clear in 2020.
DOJ Emphasizes Transparency and Encourages Cooperation
Over the past year, the Criminal Division of the U.S. Department of Justice has continued its efforts to enhance transparency with respect to the DOJ's prosecutorial decision-making. Ironically, increased transparency — and the increased cooperation that the DOJ seeks as a result — can also create risk for the department when it prosecutes individuals with information obtained by a cooperating institution.
Key Developments in Delaware Corporation Law
In 2019, Delaware corporation law largely was shaped by post-closing suits for money damages against directors who had approved mergers or acquisitions. The Delaware courts also provided valuable insight to directors charged with monitoring risk and illuminated the standards by which director independence will be measured. Additionally, stockholder inspection rights continued to evolve under Section 220 of the Delaware General Corporation Law.
2020 Class Action Outlook
Several cases at the circuit court level have the potential to significantly influence class action law in 2020, including a Sixth Circuit ruling that may determine the future of “negotiation” class actions, and pending decisions that will address nationwide class actions in the wake of the U.S. Supreme Court's ruling in Bristol-Myers Squibb Co. v. Superior Court of California.
Enforcing International Arbitration Awards: US Courts Achieve Prompt and Efficient Enforcement, With Safeguards
Recent U.S. court decisions demonstrate that international arbitration remains a widely used and potentially attractive method for resolving international business disputes, largely due to the relative ease of enforcing awards under the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral. However, U.S. courts are sensitive to cases where a purported foreign "award" was not genuine and will refuse enforcement where there are serious questions.
Proposed Rule Could Substantially Affect ‘Disparate Impact’ Claims Under the Fair Housing Act
A rule recently proposed by the U.S. Department of Housing & Urban Development may provide additional defenses for lenders in "disparate impact" discrimination claims under the Fair Housing Act.
The State of Congressional Investigations Heading Into 2020
In 2019, congressional oversight committees in both the House and Senate investigated a wide range of private sector industries, a trend likely to continue in 2020. Companies should consider proactive measures to address business practices or policies that could come under congressional scrutiny.
Regulatory
Antitrust Enforcement Centers on Technology Industry
As United States and European Union antitrust authorities continue to show signs of greater enforcement levels in 2020, high-tech industries and digital markets are expected to face the most scrutiny on both continents.
Blockchain Trends and Enforcement Surrounding the New Technology
In 2019, regulators started to consider the possibility that "stablecoins" could become an accepted means of global payment, a testament to the growth of blockchain technology and the number of projects seeking to develop a useable virtual currency. Despite that shift, the U.S. Securities and Exchange Commission continued to bring enforcement actions throughout 2019. These efforts likely will continue in 2020, increasing the probability that the courts may be called upon to provide some clarity around token sale activity that occurred in 2017 and 2018.
CFIUS’ First Full Year Under FIRRMA
In 2020, we expect general continuity of practices surrounding Committee on Foreign Investment in the United States, with an increased focus on China-related non-notified transactions; implementation of the final Foreign Investment Risk Review Modernization Act of 2018 regulations (effective February 13, 2020); and, likely most significantly, expanded mandatory CFIUS coverage via continuing export control reform.
Conservative Party Win Paves Way for Reforms to UK National Security Reviews
The Conservative Party’s conclusive win in the U.K.’s recent general election paves the way for long-anticipated and decisive reforms to the country’s national security screening regime. Recent government interventions in high-profile transactions with national security implications highlight the increased focus on national security concerns in recent years and provide useful lessons for navigating the future regime.
An Illusory Promise or Real Change? Transition at CFTC Brings Hope for Dodd-Frank Act Revisions
While the CFTC under the Trump Administration has claimed to make efforts to reduce regulatory obligations in the derivatives space, the number of CFTC enforcement actions for regulatory violations continues to rise. Market participants are hopeful that recent changes at the CFTC will finally result in meaningful action to prune back the underlying regulatory obligations that resulted from the rushed implementation of the Dodd-Frank Act nearly a decade ago.
Growing State Anti-Discrimination and Anti-Harassment Protections Create Patchwork of Regulations for Employers
Several state governments have enacted significant legislation addressing discrimination and harassment in the workplace. Combined with a lack of action on the federal front, these changes create a patchwork of rules that employers must navigate as they balance compliance with state laws while maintaining consistency in their workplace policies, procedures and trainings.
Drug Pricing Concerns Drive Continued DOJ Focus on Life Sciences Companies
In 2019, U.S. Department of Justice (DOJ) enforcement activity targeting drug and device manufacturers jumped sharply, with more than two-thirds of settlements involving Anti-Kickback Statute violations. We expect attention on kickbacks and financial fraud to continue in 2020 as the DOJ focuses on the activities it believes contribute to high drug and medical device prices.
SEC Enters Election Year Focused on Key Initiatives
Despite the customary slowdown associated with a presidential election year, the SEC is expected to continue in 2020 its efforts to address several long-standing regulatory priorities, such as increasing oversight of proxy advisory firms and updating shareholder proposal rules.
The Tax Cuts and Jobs Act's Impact on Cross-Border Transactions
Two years after the enactment of the Tax Cuts and Jobs Act, taxpayers continue to encounter complexities arising from interpretations of the new statutory rules and how they interact with prior rules, reinforcing calls for administrative guidance to provide more clarity.
Challenging Tax Cuts and Jobs Act Regulations and IRS Guidance
The Tax Cuts and Jobs Act (TCJA) brought sweeping changes to the U.S. international tax system. Two years later, taxpayers continue to face substantial uncertainty as to how the TCJA’s rules affect current tax return filings and a company’s financial reporting. Affected taxpayers should explore creative procedural options for accelerating their cases, which could allow them to obtain clarity and resolve their issues far more quickly.
Lessons From 2019: Impact of BEPS on Cross-Border Transactions
In 2019, a number of common themes emerged from cross-border transactions that have continued to demonstrate the impact of the 2014 Base Erosion and Profit Shifting actions. These themes, which we anticipate will gain even more traction in the coming years, impact all stages of a transaction, including due diligence, structuring and valuation, integration, reporting and ongoing operation of group structures.