- 13/06/2025
Mathieu Meffre, CEO of LEADERS LEAGUE, explores the effects of global economic warfare on mergers and acquisitions, highlighting the impact of protectionist policies, trade tensions, and economic sovereignty with the speakers of the panel discussion "Economic Warfare: What Impact on M&A?".
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00:00Sous-titrage Société Radio-Canada
00:30Sous-titrage Société Radio-Canada
01:00Sous-titrage Société Radio-Canada
01:30Yeah, I would say uncertainty is good for the lawyers. It's maybe not so good for M&A. In the U.S. going into 2025, I don't think you would find an investment banker on the street who wasn't bullish about M&A. They thought we're going to have deregulation from all the regulations that President Biden put in place. We're going to have an open economic policy. We're going to have an ease in the antitrust regime.
01:51And that has not come to fruition. In fact, really the opposite has happened with the tariffs and with sort of the weaponization of U.S. regulatory bodies around deals. And that's created – I mean, that's sort of what the uncertainty is in 2025.
02:06And it's frankly not just a tariff themselves but a lack of clear tariff policy. So it makes it very difficult in terms of an M&A context to reach agreement on valuations, to be certain that the seller's future value is what you think it's going to be, and to even get the transactions closed.
02:21And it's not going to stop because I think it's a leadership style or so uncertainty. It can be anyway. And it's not very hard. It's not very easy to understand where we go.
02:34And I think for M&A, because M&A, even if we have two elite lawyers from M&A in France, in U.S. today, uncertainty frees the market. It's very hard to make decisions, to know where we want to go.
02:50We already heard that now it's time for carve-outs and refocus on core business so that we can manage the top line and being able to handle the leverage we have on the company right now and things like that.
03:06But in terms of growth, in terms of decision, in terms of diversification, in terms of consolidation, it's not very easy today, I guess, to be with your clients, to help them.
03:18And what's your role as lawyers in such context?
03:22We have, you know, it's sort of the same role it's always been, but it's become more intense.
03:28You know, to get a transaction done in the current climate, it takes a lot more creativity than it had in the past.
03:36And as you said, I think our current administration takes a philosophy of breaking things and then fixing them after.
03:42And so sort of managing a client through the uncertainty that requires is important.
03:47And I think there are lots of places where we have an enhanced role in terms of valuation.
03:54You know, it's very difficult in a climate where there's uncertainty for a buyer and seller to reach agreement on valuation.
04:01So we're seeing more creative transaction structures to kind of get around that question, including more stock-for-stock mergers.
04:07And particularly if you have a company, the companies that are in the same industry, you only have to decide at that point what's the relative valuation between the companies as opposed to what's the absolute valuation of the combined company.
04:17So we're seeing that.
04:19We're seeing a lot more activity in the due diligence front to be more prepared.
04:24Buyers trying to understand not just the seller's business, but kind of the sources of the business.
04:28What are the customer and supplier relations?
04:30What are the outputs and inputs of the business?
04:32And where might there be tariffs in that?
04:35And if there aren't tariffs now, again, we wake up every morning and there's something new.
04:39What plan does a seller have in place that if there were tariffs to shift manufacturing or change customers or change suppliers?
04:46So there's lots of places for lawyers to add value in this kind of climate.
04:48I would say that we were talking about economic warfare and you remember that Klaus Witt said that in war you have fog.
04:58So you have to war, you have to fight in the fog of war.
05:02And as advisors, our role is to try to give a little bit of clarity to help clients go through an M&A transaction.
05:12Many clients are not completely used with M&A transactions.
05:18Some of them, it's the first time they do a significant transaction and they want clarity.
05:24And first, we need to help them to try to have clarity, but also we need to be flexible because you don't always have clarity.
05:30So you need to be very flexible, very prepared to help them go through any unexpected situations.
05:39In a takeover, which is supposed to be smooth, you have an interloper.
05:46In an M&A transaction, in a pretty quiet sector, you have investment control difficulty.
05:53Antitrust that was supposed to be okay, in fact, you go to phase two because something happened.
06:00You face political sensitivity, you need to find the right person, the right angles to try to deal with that.
06:06So I think this is where we have an added value.
06:09So trying to help our clients go through this uncertainty
06:15and also facing some constraints that we have in our regulations that make it difficult to deal with uncertainty.
06:27Yeah, I agree.
06:28I mean, I think it's a lawyer's job in a transaction to certainly help the parties understand the risks
06:33and allocate them as they're known.
06:35But in a time of uncertainty, there are lots of risks that we don't know.
06:39And so it's our job as lawyers to sort of help see around the corners
06:42and help the parties understand and transact how to deal with those sort of unknown risks.
06:47And in this climate, there are a lot of corners to look around.
06:51And how's the market right now after the first semester in the U.S.?
06:56So it's interesting.
06:57As I said, going into 2025, there was a really bullish attitude as to what M&A was going to look like.
07:02That has not been the case.
07:04There's been a cooling off.
07:05I think there has been the beginning of an uptick back in M&A activity.
07:11I think the best rationale for that would be that I think there are a lot of companies out there
07:15who have been waiting to do a transaction and are just sort of saying,
07:18well, this is the new normal.
07:20Uncertainty is how we're going to live for the foreseeable future.
07:22We need to get this deal done.
07:23So we're going to be creative and find a way to do it.
07:26I also think, and this happened in COVID also,
07:29where some companies emerged from COVID strong and other companies emerged weak.
07:35And that created kind of an arbitrage opportunity and really caused an M&A boom that came in sort of at the end of COVID.
07:41I think we may see the same here, which is when, hopefully it's not if,
07:46but when this uncertainty settles down, I think we will also see a resurgence
07:50because there will be still companies who were afraid to put their toes in the water in this kind of climate
07:54and are ready to do a deal as soon as things look clear.
07:57So uncertainty in the new normal and your name.
08:00It is.
08:02But effectively, you, especially in our contracts,
08:07more and more we need to be more and more subtle,
08:10more and more sophisticated to deal with uncertainty.
08:13Let's take an example.
08:17Until recently, one of the main regulatory conditions to deal was the antitrust regulatory condition.
08:23And we had some technology, what we call the hell or high water,
08:27to allocate risks between buyer and seller,
08:30but who took the risk of obtaining this consent
08:35and which commitment the party to try to obtain this consent.
08:41Today, we also need to deal with FDI,
08:44throwing direct investment control.
08:46Much more subtle.
08:47We are much less at ease in predicting what could happen.
08:51We are much less at ease with predicting what could be requested
08:55from the authorities being the CFIUS in the US
08:59or the French Ministry of Economy.
09:02And some transactions like we have seen with Safran
09:04when they tried to purchase from a US company,
09:08mainly French group, Collins Aerospace,
09:11with Italian entities, small entities,
09:14and they faced an FDI difficulty in Italy.
09:19I'm pretty sure they did not totally anticipate that.
09:23It would have been difficult to do.
09:24And so we need to be all the more sophisticated to deal with that.
09:31And also our clients need to understand
09:33that the good old days are over
09:37and that they need to enter into certain processes
09:39where the duration, the cost, the commitments
09:45could be a little bit unforeseeable at the beginning.
09:49Yeah, I think that's an excellent point.
09:50I think we're seeing increased nationalism and protectionism
09:54in terms of M&A across the globe with countries one-upping themselves.
09:58And traditionally, the restrictions in foreign direct investment in countries
10:02were around national security.
10:04But we're seeing increasingly governments,
10:06particularly in the US, weaponizing that process
10:09and blocking transactions for political means.
10:14Like in the US, there's a transaction pending between Nippon Steel,
10:18which is a Japanese company, and US Steel.
10:21And the Biden administration actually blocked that initially.
10:24The Trump administration has said,
10:25maybe we're open to it.
10:26We're not sure.
10:28But steel production is typically a matter of national security.
10:31But when you look at it more closely,
10:32you realize, well, it actually implicates jobs in Pennsylvania.
10:36And Pennsylvania is a key swing state in presidential elections.
10:40So a president would get very concerned
10:42about keeping themselves popular in Pennsylvania.
10:44And so they use CFIUS to block that kind of transaction.
10:48Go ahead.
10:48Maybe one conclusion in this respect.
10:50Also keep in mind that for all the M&A activity
10:53which is fueled by investment funds, or PE funds,
10:56this new world makes it also difficult to predict the outcome, the exit.
11:02Today, for certain assets, you have to wonder from the beginning,
11:06will I be able to find an easy exit with a full array of potential buyers,
11:13industrial or PE buyers, for certain activities because they are sensitive,
11:18or because they are not sensitive, but they could be sensitive in two, three years,
11:22because we know that the scope of the sensitivity business increases every year.
11:26So it's another uncertainty which could also affect the value,
11:30because when you are less certain to be able to have a very competitive exit process,
11:37you may want to save a little bit of money at the beginning.
11:40And that's why maybe you don't have that much in France
11:43vehicles dedicated to defense.
11:46We don't have that much.
11:48Two, three, four maybe.
11:50Yeah, absolutely.
11:52Because it's booming.
11:53The ramp-up industry, the ramp-up is crazy.
11:56We will be with the channel at the Bourget on Monday.
12:00Maybe you will both be there also.
12:03But the ramp-up is amazing.
12:05The orders are amazing.
12:06The top line for the next 10 years will be surely amazing,
12:11but not many PE funds in the industry in France.
12:14I think the difficulty with defense industry,
12:16that you have the announcements on day one,
12:19and all these are very long-term businesses.
12:23You know that orders have to be maintained for years and years.
12:27We know, I'm sure Dassault, Thales, and other Safran will tell you
12:32that the order of day one is not the order two years later,
12:36and then you cancel orders.
12:37I think, especially in France,
12:39we have a number of industrial giants in terms of defense,
12:43but just below the tier one, tier two subcontractors
12:48are in a less performing situation.
12:55Still, you have some investment funds
12:56sponsored by aerospace sectors who are in this business.
13:03Like captive funds.
13:05Yeah, or the TKOAs, things like that.
13:07Or captive funds from Safran.
13:11In the U.S., it goes beyond the defense industry
13:15in that any industry that's somewhat dependent on government contracts
13:20is an industry that's in jeopardy
13:22because it's being used, again, as a weapon
13:24by the current administration
13:25to punish companies that aren't doing
13:27what the administration likes.
13:29What is your message, dear Grégory,
13:32to all the French market that is listening to us right now
13:34concerning the difficulty to navigate in unrational
13:39from a legal and business perspective
13:41because politics and geopolitics means unrational
13:44and the business side can mean that.
13:46What do you tell them?
13:47Yeah, it's a good question.
13:49Look, uncertain political winds are nothing new.
13:52Maybe it's a little windier than it used to be,
13:54but I think there are ways to get deals done.
13:57You just, you need to be,
13:58you have to have the right advisors,
13:59but you need to be creative
14:01and you need to think about what's coming around the corner
14:03and you need to engage in,
14:06whatever you put in a contract between parties
14:08only goes so far.
14:09So careful diligence is really important
14:12and on the regulatory front, engaging early.
14:14On the CFIUS front, for example,
14:16which is our foreign direct investment regulatory process,
14:21it's an executive level decision.
14:23So it's not really something you can appeal in the court later.
14:26It's kind of a final decision for all respects.
14:30But this administration has shown itself to be transactional,
14:33which is good.
14:34So starting that process early
14:36and having those discussions early,
14:38you can often reach some sort of a resolution
14:40where you can get your deal through.
14:41The big word, be prepared, anticipate
14:44and make sure you read well,
14:46your due diligence is
14:48and take a look at what's coming around the corner.
14:51Thank you very much, Gregory E. Osling
14:53from Wagtel, Lipton, Rosen and Katz
14:56for being with us today.
14:58Thank you very much for having me.
14:59Thank you, Olivier Huck-Depointe.
15:00Thank you very much.
15:01Thank you very much.
15:02Always a pleasure.
15:03Merci à vous de nous avoir suivi
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