Sullivan & Cromwell M&A Chief Charts Rise of Take-Private Deals

Companies having second thoughts about going public are fueling a surge in go-private deals, according to Melissa Sawyer, global head of Sullivan & Cromwell’s mergers and acquisitions group.

“Companies that are already public are feeling like living up to the requirements of being a public company—the costs associated with that, the quarterly reporting, the pressure from shareholder activists—is all becoming too much,” said Sawyer.

Global take-private deals reached $127 billion through July, according to Bloomberg data. That’s just shy of the total for all of last year.

Several large take-privates emerged in the deals market this year. In February, Novo Holdings announced its $16.2 billion deal to take health tech provider Catalent Inc. private. In April, Silver Lake Management announced plans to take Endeavor Group Holdings, which owns Ultimate Fighting Championship and World Wrestling Entertainment, private for $10 billion.

Some companies find after going public that capital is pricier than they expected, Sawyer said. They’re turning instead to private equity shops, where dry powder reached a record $2.59 trillion last year as a slow deals market limited opportunities to deploy capital, according to data from S&P Global Market Intelligence and Preqin.

Others are opting against going public in the first place. Initial public offerings dropped to $91.7 billion last year, the lowest level in a decade, according to Bloomberg data.

“Some public companies feel like they have a target on their backs, and the number of IPOs has been declining steadily over the years,” Sawyer said.

Deals Market

Sullivan & Cromwell has been among Big Law’s top dealmakers under Sawyer. The firm’s lawyers advised on $79.5 billion worth of M&A transactions in the first half of this year, according to Bloomberg data.

Sawyer often leads that work. She is guiding Boeing Co. in its $8.3 billion pending acquisition of parts manufacturer Spirit AeroSystems Holdings Inc., a deal announced this month. She also guided Seagen Inc. in its $43 billion acquisition by Pfizer Inc. last year.

Health care has been among the bright spots for deals during a slow stretch in the last two years. Sawyer said regulatory pressure, including from the Federal Trade Commission under Lina Khan, is continuing to chill transaction activity across sectors.

Melissa Sawyer

“There are a couple of large serial acquirers in health care who I think are more hesitant to do routine transactions because they’re saving their firepower for transformational deals, because they know every deal is hard to get through,” said Sawyer.

The FTC has its eye on several mega deals. In July, the agency began probing executives from oil giants including Hess Corp. and Diamondback Energy over communications with OPEC officials amid deals under FTC review.

That kind of scrutiny has extended deal timelines, creating financing headaches and adding to costs for companies.

“You need your debt commitments to last for 18 months,” said Sawyer. “My sense from recent transactions that I’ve been involved in is that banks are willing to let their commitments hang out there for more than a 12 month drop dead date, which is a little bit of a change in past practice.”

The November election could impact the deals landscape, though any impact will take several months to trickle into practice, according to Sawyer.

“If there is a change at the top, it will probably be in the number of litigations that are brought and the success rate on those litigations,” said Sawyer.

AI in Dealmaking

Sawyer is also keeping her eye on the rise of artificial intelligence technology. AI tools in the market today still lack the accuracy and functionality to make them useful for dealmaking beyond speeding up commoditized tasks, she said.

“The tools that are available are not that reliable yet, and the accuracy ratings are not great,” Sawyer said. “The more complex deal work involves judgment, experience and creativity and the AI just isn’t there yet.”

As the tools improve, however, they could disrupt the way Big Law firms bill their clients, she said. By making lawyers more efficient in routine tasks, it may encourage firms to rethink the billable hour, long the industry standard.

“It puts pressure on saying that an hour of your time spent paging through a due diligence document is worth the same as an hour of your time spent counseling a board on a very difficult judgment call,” said Sawyer.