As businesses rebound from the international economic slump, mergers and acquisitions have multiplied. More than 21,000 deals totaling $1.9 trillion in volume were announced globally between January 2010 and November 2010, marking a 12 percent volume increase from 2009 igures, according to Bloomberg's 2011 M&A Outlook. Market experts predict continued increases in M&A activity this year, particularly in the energy industry.
Although M&A deal lawsuits aren't a new phenomenon, they have increased because the large federal securities class actions (think Enron) traditionally tackled by the plaintiffs bar have decreased since the recent recession, meaning firms have had to shift their focus in order to stay afloat.
"I'm trying to think of an M&A transaction that I've been involved in over the past two or three years where there hasn't been a suit, and I'm not sure I can name one," says Bingham McCutchen Partner Stephen Alexander, adding that settling the lawsuits has "become a cost of doing business."
Most deal-related lawsuits are filed in the Delaware Court of Chancery because about 60 percent of Fortune 500 companies are incorporated in Delaware. The newest judge on the court, Vice Chancellor J. Travis Laster, who was appointed in 2009, has been vociferously critical of the nature of some shareholder suits, saying they feature warrantless claims and mainly benefit plaintiffs firms (see "Character Counts").
Some plaintiffs firms have begun filing M&A deal lawsuits not only where a company is incorporated, often Delaware, but also in the state in which it is headquartered. The resulting multi-jurisdiction litigation on a single deal could amplify the risk of an adverse decision on corporate defendants because a shareholder suit heard in a state court could result in a jury trial or punitive damages.