M&A Predictions and Guidance for 2024
1. Cross-Border M&A – The era of migration transactions comes into full bloom. Many companies listed outside the US would trade today at higher multiples to earnings and other applicable metrics if they were listed in the US and, even more so, if they could make it into the S&P 500 (which does not require that […]
Ethan Klingsberg is a Partner at Freshfields Bruckhaus Deringer LLP. This post is based on his Freshfields memorandum. 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.
1. Cross-Border M&A – The era of migration transactions comes into full bloom.
Many companies listed outside the US would trade today at higher multiples to earnings and other applicable metrics if they were listed in the US and, even more so, if they could make it into the S&P 500 (which does not require that issuers be organized under the laws of a US state).
The result will be a continuation of these trends:
- Exchange hopping. Issuers listed outside the US will increasingly obtain a second listing in the US, and then migrate over to having the US listing as their primary listing and thereby take advantage of index eligibility that comes with this migration.
- Using excess cash to arbitrage multiples. US-listed companies will use their excess cash to buy targets outside the US. When those earnings become housed under a US-listed company, they will trade at the US-listed company’s higher multiple. Even when paying a premium to the non-US listed entity’s trading price, there will be room for a win/win for the US buyer and non-US target holders, especially if there are some synergies. Buying outside the US will mean digesting terms and takeover rules that are more target-favorable than in the US, as well as often having to undertake more acrobatics than the US M&A regimes require for acquiring 100% ownership. The trading multiple arbitrage will make the effort worth it.
- Stock combinations to back into a US listing. Stock for stock combinations (including mergers of equals) between US-listed and non-US listed companies will provide an efficient way to reap synergies and get that non-US company listed in the US with the multiple bump and index inclusion advantages.
