Howard Shecter, head of Orrick’s M&A group, pointed out that Thomson doesn’t count unannounced private deals. Orrick, he said, worked on a number of private transactions, which on average might be worth less than public deals, but may produce more due diligence work.
Gerstein acknowledged, though, that the economic downturn can sting.
“It depends on the complexity and scale of the deals, but certainly fewer deals as a general matter means less work,” he said.
Many M&A practice heads said the anemic dollar value of the deals is not much of an indicator of practice health.
“It’s not as profound as you think, because we don’t get paid as a percentage of a deal,” said Shecter.
Several practice heads said that while there have been far fewer really big deals, midsize transactions are going relatively strongly.
“Large transactions are exciting and offer significant prestige, but the vast majority of M&A revenues for even the large law firms are generated in the $1 billion-and-under market,” Gerstein said.
| Quarterly Losses We chart (.pdf) the numbers comparing Q1 ’07 to the much less pleasant Q1 ’08 for the ten firms topping the Cal Law 25. |
Jack Walker, a consultant who was Latham’s managing partner for six of his 30-plus years with the firm, noted that a high value can suggest a more complex deal and, thus, more work.
“In the case of deals, you’re adding value. So there’s always more of a celebratory, share-the-wealth attitude,” Walker said. At least with a lot of cash involved, the Zeughauser Group consultant added. Stock deals are less lucrative. “There’s less liquid assets – less to share.”
“There probably is a general relationship between revenue and size of deals, although it’s not a perfect correlation,” agreed Jonathan Layne, co-chairman of M&A at Gibson, Dunn & Crutcher. The firm worked on a set of deals worth $54 billion – more than the remaining top 10 firms combined – thanks mostly to advising the banks behind Microsoft’s $41 billion bid for Yahoo.
Regardless of the importance of deal value, though, the sharp decline in numbers of transactions can’t be good, consultants said.
“I would be shocked if most firms – at least the major players in that area – aren’t seeing a reduction in hours,” said Ron Beard, a Zeughauser consultant who was Gibson’s chairman for 10 years.
Leaders of M&A practices were quick to point out bright spots in the dark economy. Foreign clients, they say, are eager to shop in the land of the increasingly discounted dollar.
“Cross-border deals led by strategic buyers outside the United States and the sovereign wealth funds . . . could be a very dramatic part of the M&A market,” Orrick’s Shecter said.
So far, though, foreigners haven’t yet swarmed U.S. shores en masse.
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