The major stories in the energy space in 2015 were plummeting oil prices and climate-related issues, which were reinforced by the 2015 Paris Agreement. The former has led to a slowdown of infrastructure work, with the Keystone XL Pipeline being vetoed by President Obama in February 2015, and several wells remaining uncompleted. Upstream and, to a lesser extent, midstream players have been hit hard by the oil price slump. Bank regulators have been scrutinising banks’ energy portfolios, and, for less established upstream and midstream players, conventional financing is much tougher to secure, which has led to a greater reliance on private equity and structured finance. Lawyers have seen an increase in credit-side work, with clients attempting to stimulate capital flow, and near the end of 2015 - when the realisation sank in that low prices would not be leaving quickly - there was an uptick in oil and gas transactions.
There has also been an increase in disputes between participants in joint ventures, who are now trying to get out of long-term supply contracts; several joint ventures have unwound and sold their mineral rights. Insolvency and bankruptcy cases have become increasingly prominent: over 30 oil and gas companies went bankrupt in 2015, largely in the second two quarters. M&A activity is increasingly driven by distress rather than a desire to expand, with an abundance of distressed assets continuing to enter the market. It is an uncertain market indeed; sellers are reluctant to sell too low, but when it comes to energy assets they are very much trapped in a buyer’s market. There has been a rise in asset-bundling to make assets more palatable to private equity firms, which have become instrumental in driving activity in the sector.
The renewables sector, on the other hand, is burgeoning, its development being pushed by many US states. The EPA released a Clean Power Plan together with the Obama Administration, setting targets to reduce carbon dioxide by 32% from 2005 levels by 2030, which will be a boost to the nuclear power sector. California passed a bill targeting 50% renewables by the same year; Hawaii enacted the nation’s first 100% renewable energy standard, to be met by 2045. Coal plants have been retired in force, rendered unviable by low gas prices. With Congress extending the renewable investment tax credit, firms are expecting an increasing number of projects particularly in solar and wind, including a further rise in foreign investment, with more and more hedge funds and private equity firms coming to the market. On the regulatory side, the trend of the FERC focusing on market manipulation matters, such as enforcement issues and investigations, is ongoing.
Environmental work continues to be a very busy area on all fronts. The litigation segment has not seen any major developments in the past year, but law firms did report an increase in CAA and climate change litigation. Firms continue to defend clients in environmental enforcement actions, as well as challenging regulatory pronouncements, with water, hazardous waste, endangered species and air regulations the key drivers of work.
On the environmental regulation side, law firms report an increase in work regarding climate change and CAA due to Obama’s Clean Power Plan, as well as other related regulations such as ozone standards and the recent international Paris Agreement on climate change. Clients are trying to determine the risks that their activities involve. There is also more work in relation to environmental compliance, water rights, waste management and the Superfund program.
Transactional work is handled primarily by the strong New York practices. Firms reported a very busy 2015, with numerous deals with significant environmental ramifications. The improvement of the capital markets has led to increased deal activity, despite the probable environmental challenges. Firms also report an increase in energy-related work.
Healthcare reform remains an important factor in the healthcare insurance industry, which has initiated unprecedented change within the sector. Consolidation continued through 2015, creating significant demand for transactional and regulatory advice. Health insurers have become increasingly active in the M&A space, which has even extended to insurers acquiring service providers. Blue Shield of California’s acquisition of Care1st Health Plan was one of the more notable deals of 2015. Giant of the California market Manatt, Phelps & Phillips, LLP advised Blue Shield of California and Foley & Lardner LLP represented Care1st Health Plan. Centene’s $6.8bn acquisition of Health Net was another notable deal, with Morgan, Lewis & Bockius LLP advising Health Net and Skadden, Arps, Slate, Meagher & Flom LLP representing Centene.
Data privacy has also become a particularly challenging theme for health insurers and their legal advisers. The data breach at health insurer Anthem in early 2015 shook the industry and led to a more intense focus on data privacy and cybersecurity issues. Government investigations and enforcement actions continue to be a feature of the market.
The life sciences table features firms with strong FDA and related regulatory capabilities and supporting expertise in areas such as product liability and IP litigation. The life sciences sector continues to be subject to rigorous oversight and regulation at federal and state level, and as more regulatory structure is added, life sciences companies have the need not just for specialists with expertise in new legislative, regulatory and industry developments, but also for counselors who understand how the regulations and developments fit within the broader regulatory framework and how they can be practically adapted to common industry practices. M&A activity remains high, and is a key driver of work for most high-profile players, and among the top tier firms, most have been involved in blockbuster deals. Collaborations are also major sources of work, with a recent example being the collaboration between Merck and Pfizer to evaluate the combination of Avelumab and Entinostat in treating ovarian cancer.
Transactional activity in the healthcare sector ballooned in 2015, with an industry move towards consolidation and an increasing interest from private equity investors in this asset class. For top healthcare practices, such as those at McDermott Will & Emery LLP and Ropes & Gray LLP, private equity transactions have become a healthy driver of work and revenue. Hospital consolidation has been a notable theme in recent times, as has mergers between insurers and service providers. Regulatory issues continue to be an important part of the healthcare scene thanks to an increasing number of government investigations and voluntary self-disclosures under the federal anti-kickback and Stark laws. In addition, data privacy and cybersecurity has become a major focus within the healthcare industry, following the highly publicized data breach at health insurer Anthem in 2015.
Consolidation has been the buzzword in the insurance market during a raft of recent insurance company tie-ups, including XL Group’s merger with Catlin Group and Aetna’s merger with Humana. The consolidated market has increased competition for work between law firms providing advice to insurers. However, the opposite could be said for non-contentious insurance practices with M&A-focused practices, which have been busy handling the increased dealflow. Private equity and hedge fund interest in the sector continued to grow this year, notably with international firms (particularly from Asia) investing in the US market. The Dodd-Frank Wall Street Reform and Consumer Protection Act and the Affordable Care Act (ObamaCare) continue to generate substantial work for practices with a regulatory focus. Cyber liability is another talking point among firms, given the uncertainties surrounding cyber policies being ironed out through new product development, litigation and new regulations. Asbestos-related litigation continues to be a major theme of work.
After a wave of player disciplinary issues in 2014, the NFL was rocked by the ‘Deflategate’ controversy in 2015, when the New England Patriots were alleged to have tampered with the footballs used in its NFL Playoff game versus the Indianapolis Colts. Quarterback Tom Brady was suspended by the league for four games, a verdict that was upheld by the NFL Commissioner before being overturned in federal court. The NFL concussion lawsuit continues to rumble on, despite a federal judge approving a settlement agreement, as a significant number of the plaintiffs have appealed the agreement. Broadcast agreements continue to be a highly sought area of work and firms have noted a growth in the attraction of US sports globally. The marquee transaction of 2015 was the $850m sale of the Atlanta Hawks to an ownership group led by billionaire Tony Ressler, who had previously fallen short in his bid to acquire the LA Clippers, which was purchased in 2014 by Microsoft CEO Steve Ballmer. While $850m is some way below the $2.1bn Ballmer paid for the Clippers, it is considerably higher than the going-rate for European soccer clubs and may account for US investors’ increased interest in English and Italian sides. Soccer’s popularity on a domestic front also continues to grow and firms have been kept busy with work for new MLS expansion franchises, Atlanta United FC, which is owned by Arthur Blank, and Los Angeles FC, which is headed by Henry Nguyen and includes high-profile investors from the world of sport - notably Magic Johnson and Mia Hamm-Garciaparra - as well as actor Will Ferrell.