Simpson Thacher leads major legal dealmakers as M&A activity skids

Simpson Thacher & Bartlett is Big Law’s top M&A adviser again as global deal activity fell in the third quarter to its lowest level since 2020.

Global transactions totaled $2.8 trillion in the third quarter of 2022, down 28.5% from the same nine-month period a year earlier.

“There’s just too much uncertainty everywhere you turn right now and that makes it very difficult to sign new deals,” said Eric Swedenburg, co-head of Simpson Thacher’s M&A practice.

Trading activity fell to $704 billion in the third quarter, a low not seen since the second quarter of 2020, when global markets ground to a halt due to the coronavirus pandemic. Markets quickly rebounded as the pandemic took hold, propelling global M&A activity to record highs over the past two years.

The latest downturn marks the end of this frenzied transactional market, which has fueled double-digit growth in revenue and earnings per partner for several major law firms.

“For a long time, more or less, all drivers were banging on all cylinders,” said Kirkland & Ellis partner Sarkis Jebejian. “We are now in a more mixed period and, while some of the traditional drivers are still there, some of them have gone the other way.

Interest rate uncertainty and inflation fears cast doubts on equity and debt markets, deal advocates said, coupled with heightened regulatory scrutiny in the United States, particularly vertical acquisitions.

This has dampened the market and left traders wondering what lies ahead.

“People in all sorts of areas are wondering if this is just a regression to the mean or if it’s going to get worse,” Jebejian said.

Top of the board

Simpson Thacher topped Bloomberg’s rankings in total deal volume per principal for the third straight quarter, advising on 142 deals worth $346.7 billion so far in 2022.

The Wall Street firm has advised on many of the largest deals so far this year, including the $70.4 billion acquisition of Broadcom Inc. by VMware Inc., the acquisition of Activision Blizzard Inc. by Microsoft Corp. for $68.7 billion and Elon Musk on, off, and now revived purchase of Twitter Inc. for $44 billion.

“We have an experienced and talented group of lawyers, and you combine that with a terrific list of clients, many of whom are the most creative dealmakers in the business, and I think that’s what has propelled our success over the years. first three quarters,” Swedenberg said.

Wachtell Lipton Rosen & Katz followed, advising on 57 deals worth $218 billion. Kirkland & Ellis, Latham & Watkins and Skadden Arps Slate Meagher & Flom round out the top five companies by transaction volume.

Perennial deal machine Kirkland & Ellis again topped reported global deals by number of deals per principal, advising on 608 deals worth $214.6 billion.

The Chicago-based firm advised Vista Equity Partners on its $16.5 acquisition of software company Citrix Systems, as well as a subsidiary of Elliott Investment Management earlier this year. In September, the firm advised private equity real estate investor Oak Street on an acquisition with GIC of STORE Capital Corp. for $14 billion.

“We as a company – at all levels, in all of our offices – have built an M&A practice that is truly designed to succeed through different market cycles, and because we don’t focus on a particular industry or market sector, we are able to go where the activity is,” Jebejian said.

Silicon Valley-based Cooley LLP climbed the deal list, advising on 435 deals worth $43 billion, followed by Latham & Watkins, Goodwin Procter and Wilson Sonsini Goodrich & Rosati.

Cooley’s mergers and acquisitions practice is smaller than that of some of the other companies at the top of the deal count rankings, said Barbara Borden, the group’s co-chairman.

“It’s great when we can punch above our waistline,” Borden said.

Cooley, founded in Silicon Valley, is known for her work in technology and life sciences. Technology was a bright spot in the otherwise declining M&A market, accounting for $526.3 billion in the first three quarters of 2022.

The firm’s mergers and acquisitions work nurtures a broad and diverse base of corporate clients, both public and private, rather than focusing on a few big players, Borden said. She noted that the company also works with many regular buyer customers who are not part of its day-to-day corporate customer base.

“A more turbulent year, a more turbulent market”

Deal activity hit $1.01 trillion in the first quarter of this year, down 40% from the previous quarter.

Activity rebounded slightly in the second quarter, with deals hitting $1.07 trillion before falling back to $704 billion in the three months to September.

Private equity deals have accounted for $1.08 trillion so far in 2022, compared to $1.56 trillion over the same period in 2021.

“Anyone who looks at the numbers will see that it’s been a rougher year and a rougher market for mergers and acquisitions,” Jebejian said.

SPACs were responsible for a significant chunk of deal value last year, as many deals had to be done in the acquisition window after an initial public offering, said Iman Anabtawi, a law professor at the ‘UCLA specializes in mergers and acquisitions.

The SPAC craze has since all but died down. Interest rate uncertainty and concerns about the cost of funding and earnings volatility are making people much more cautious.

“When there’s uncertainty, there’s a lot more hesitation to sign deals,” Anabtawi said.

Among the bright spots that continue to drive deals are stronger supply chains and a narrowing IPO window, which could lead sellers to look at M&As as an exit strategy, a she declared.

Watch the ‘Dip’

Clients are always looking to grow their capital through deals, Kirkland’s Jebejian said. But financing is becoming more difficult and more expensive and aligning valuations is a problem.

“I would say we are back to more normal markets, although there may be a bit of a dip due to valuation issues,” Borden added.

Coupled with volatility in equity and debt markets is the heightened regulatory environment that traders must now navigate.

The slower third quarter is likely a sign of what lies ahead, traders said.

“I wouldn’t be surprised if what we see in the next quarter, or early next year, is a bit below normal,” Swedenburg said.

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