In late 2012, we created the Manufacturing Law Blog with the goal of providing our manufacturing clients with a holistic approach to the unique issues they face in their global operations. Starting in 2016, we began a new tradition of dedicating our first three posts of the year to a yearly outlook from our different vantage points.
This year, I’m starting us off by addressing corporate compliance and litigation issues that manufacturers might expect to face in 2023:
- Acquisition Activity: Inflation significantly impacted M&A both in the United States and globally in 2022. Corporate buyers – many of which had plenty of cash on their balance sheets – invested in a significant way in 2022. Many smaller manufacturers were acquired in proprietary deals without large-scale auctions. Private equity and/or financial sponsors remained interested in buying smaller companies (including in the aerospace sector), but the macroeconomic conditions made such transactions costly. One thing I will be looking at closely in 2023 is whether the “multiples” for acquisitions return to pre-COVID levels. Sellers are looking for the right “fit” at this point, as opposed to simply selling to the highest bidder.
- Supply Chain Investments: 2022 was a year in which manufacturers invested heavily in diversifying their supply chains and also ensuring that their internal processes were more robust. I expect this to continue in 2023 as more manufacturers look to us to help them develop internal playbooks and enter more long-term agreements with their suppliers. Note: There is a way to do this in a business-friendly manner, but the days of handshake agreements are almost behind us.
- More Litigation: Litigation by and between manufacturers, customers, and suppliers will increase in 2023. We saw an uptick of disputes and threats in 2022 – particularly with respect to obligations in long-term agreements that were not being satisfied. Additionally, there were several disputes related to requested price increases as raw material and supply chain costs increased. Business-to-business disputes do not get reported in the media in the same way as consumer litigation (such as class actions). So, we often need to rely on what we hear in the marketplace and we expect 2023 to be a year filled with some significant disputes. How do you protect yourself? This is a good time to look at your significant contracts, especially those that are up for renewal.
- Protectionist Policies Continue: As I have mentioned in the past, the United States is not the only country to impose policies designed to ensure more domestic investment. The parlance in the United States is “Buy American,” along with a litany of other phrases. We are definitely seeing more interest from foreign manufacturers looking to not only expand their U.S. operations but to build factories as well. As more factories are built, suppliers will want to be ready to meet that need.
- Government Enforcement: Some of our most widely-read posts concern laws that the government often imposes against manufacturers. These laws include the Foreign Corrupt Practices Act (FCPA), the False Claims Act, and trade compliance laws (ITAR/EAR), among others. The demand by our clients for our assistance with developing policies and training to address some of these issues has increased significantly and we expect that to continue in 2023. One area I would watch in 2023 is the U.S. government’s scrutiny of the use of various certifications, including Women Owned Small Business, Minority Owned Business, and others. These certifications often give suppliers certain advantages with respect to government contracting. With that said, I am seeing several reports of the U.S. government enforcing the rules surrounding these certifications, and thus it is important to make sure that manufacturers are in compliance with the rules.