August 24, 2010 6:11 PM

August Rains Deals, Dampening M&A Lawyers' Vacation Plans

Posted by Julie Triedman

Deal lawyers have had little time to catch their breath this summer, let alone escape from the office for what most people consider a real vacation. As numerous business publications have noted in recent days, August has seen a big surge in M&A activity. The total value of deals announced in August, traditionally the slowest month of the year, is expected to reach $285 billion, according to Bloomberg data. That figure approaches the busiest August on record, in 2007, when some $297.4 billion deals were announced.

"There is no August this August," Jones Day M&A head Robert Profusek quipped in an August 20 Bloomberg story. The New York Times's Dealbook carried a similar comment from Profusek on Tuesday: "I'm an avid golfer, and I have yet to play in August."

Profusek might be busier than many others. He has been tapped to lead Potash Corporation of Saskatchewan's response to a hostile $39 billion bid by Australian mining giant BHP Billiton (The Am Law Daily reported on BHP's move here).

Several other Am Law 200 firms are headlining an assortment of multibillion-dollar transactions, including Latham & Watkins, Debevoise & Plimpton, Cleary Gottlieb Steen & Hamilton, Skadden, Arps, Slate, Meagher & Flom, Simpson Thacher & Bartlett, and Sullivan & Cromwell.

Lawyers caution, however, that the current activity is driven by balance sheet requirements, not by strengthening consumer demand. Without an uptick in demand and prices worldwide, the deals announced day in, day out this month may be just a blip. "It's premature to take a data point and call it a trend," says Steve Arcano, head of Skadden's New York M&A practice.

The commodities and technology sectors have been the busiest, boasting some of the highest-profile deals. About $50 billion in proposed takeovers in the commodities sector have been announced this past week alone, the Financial Times reports--though a single deal, BHP Billiton's bid for Potash, represents a good chunk of that sum. There's lots of action coming out of Silicon Valley, too, most notably the bidding war that's brewing between Dell and HP over 3PAR. There's also the $7.6 billion acquisition of McAfee by Intel announced on August 19. Wilson Sonsini is involved in both the McAfee and 3PAR deals; Morrison & Foerster is advising Intel on its McAfee purchase.

Beyond tech and natural resources deals, some firms have seen plenty of work coming in the door from the pharmaceutical, financial services, and other sectors. Skadden represented packaging and storage company Pactiv earlier this month in its $6 billion acquisition by Reynolds Group. The firm is talking to clients about many other potential deals, Arcano says, but it's impossible to know who will pull the trigger.

What's put all these companies into a dealmaking mood? For one thing, nonfinancial companies are sitting on 26 percent more cash and liquid assets than a year ago--the biggest increase year-over-year since the Fed started tracking this, says Minyanville. As a result, there's increased pressure to spend. Since the prolonged slump in the economy has slowed revenue growth, many companies with cash to burn now are looking to acquisitions to bump up revenues and earnings.

But other factors are at play, too. Cross-border deals, particularly involving Asian companies, made up 35 percent of the deals announced this month by value. These are driven by bets that the demand for commodities will not only remain strong worldwide but will pick up speed, according to the FT. Many of the current deals involve Asian parties. They include: BHP Billiton/Potash; London mining group Vedanta's offer to take a majority stake in Cairn India; and a hostile offer by KNOC, Korea's state-owned oil company, for U.K.-listed Dana Petroleum.

Christopher Austin, an M&A lawyer at Cleary who has been tapped by HP to handle its bid for 3PAR, says that tax considerations may also be driving some recent tie-ups. Companies that are on the fence about selling might prefer to do a deal this year as opposed to next to avoid possible tax hits should Congress raise capital gains taxes or allow certain tax cuts to expire this year. "That's the wild card," Austin says.

The uptick in August represents a continuation of an already heightened pace in the first half of the year. Mergermarket notes that, from January through June, deal value was up 7.8 percent over the same period in 2009. The data company also reports a high volume of deals valued at over $500 million--the most since 2007.

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