2020 M&A Annual Review

the UK and qualifies for “excepted investor” status. Other covered investments remain subject to CFIUS jurisdiction and “voluntary” filings. The increased jurisdictional scope of CFIUS and the mandatory filing requirement have resulted in a significant increase in the use of the CFIUS streamlined joint declaration process that allows for a 30-day review period rather than submitting a full joint voluntary notice that has an initial 45-day review period plus potentially an additional 45-day investigation. Targeted Company and Human Rights Actions. In a (very) high-profile decision, CFIUS determined in August that TikTok and its parent company, China-based ByteDance, present national security risks and ordered TikTok to sell its U.S.-based business. This action occurred in parallel to the administration’s halted efforts to prohibit certain transactions with TikTok (and WeChat). Talks between TikTok and CFIUS are ongoing. Additionally, the Commerce Department added numerous Chinese companies to its Entity List following its determination that these companies were involved in human rights violations and abuses. While the specific priorities of the new administration are not yet known, the heightened attention to national security, and the need for deal parties to prepare for contingencies, are expected to continue. ESG FACTORS INCREASINGLY IMPACT M&A AND ACTIVISM 8 Accelerating a pre-pandemic trend, buyers and sellers are paying more attention to environmental, social, and governance (ESG) factors, particularly those relating to climate change, privacy and diversity and, labor practices. Such factors have gained prominence in corporate governance generally, as reflected in the Business Roundtable’s 2019 redefinition of corporate purpose to include commitments to customers, employees, suppliers, communities, and shareholders. Activists and institutional investors, including Blackrock, Vanguard, and State Street, have pushed boards to act on ESG measures, citing the long-term benefits to individual companies and to their own investors. New funds are being formed to invest in companies with high ESG attributes and in companies with specific missions. States and other regulators have imposed substantive and disclosure requirements, such as for board diversity. And consumers and shareholders continue to push for attention to ESG issues. Buyers, particularly those in public markets, may want to consider the impact of an acquisition on their own ESG profile; some buyers can use acquisitions to fill ESG holes or otherwise to improve their ESG profile. Buyers also may want to consider the potential reactions of a potential target company’s customers, employees, and other constituencies of a perceived or actual change in purpose or other ESG factors. Accordingly, diligence lists increasingly include questions regarding ESG actions and verification, and buyers are adding representations and other ESG-related provisions to agreements. Sellers, too, may want to consider the impact of ESG factors, particularly where the target is mission-driven and the seller expects the mission to be continued, and related implications for valuation. In some cases, sellers may wish to structure the acquisition in a way that preserves their mission following closing. As ESG factors are incorporated into M&A playbooks, companies increasingly may want to consider, among other things, the following: • Standards for Measurement. There is yet no uniform standard for measuring ESG actions generally. However, companies have used various means to describe their efforts, and regulators and other groups are working on standards that could be used to set and measure progress towards goals and allow comparability between companies. • Specialized Corporate Forms. New corporate forms, such as the public benefit corporation, have been developed by some states and allow or require companies to focus on mission and other constituencies as well as return to shareholders. In some cases, the new forms may make it easier for a target company to reject an unsolicited acquisition proposal that does not include sufficient protections for the mission or other constituencies. The new forms, if continued after a closing, may be useful for preserving the purpose of a company; at the same time, the buyer should consider whether using such a form provides sufficient flexibility. The new forms should not be confused with certifications, such as the “B corp” certification, that may be available to companies organized under traditional forms.