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WHAT WE'RE WATCHING

DANGER OVERHEAD - Turns out throwing money at everything can get kind of pricey after a while. As Law.com's Andrew Maloney reports, law firm recruiting and marketing expenses have skyrocketed so far this year. And some analysts say, even after triple-digit percent jumps that would be considered outliers in other contexts, it's "almost inevitable" that Big Law will see those and other expenses continue to grow as 2022 progresses. The rise in overhead costs coincides with fears of law firm profits plunging and M&A activity slowing down. Meanwhile, direct expenses such as associate compensation are up 13.1%, after multiple associate pay scale increases. The first quarter saw overhead rise 9.9% overall, with enormous surges in recruiting (121.3%), business and marketing development (75%), office expenses (31.1%) and support staff benefits (13.4%). Technology spending also increased 8%, a number that marks "one of the fastest growth paces we have witnessed since 2014," according to the latest Law Firm Financial Index report from Thomson Reuters, published this week. "Overhead expenses are going to continue to grow. I think that's almost inevitable—that we'll see increases in overhead expenses," said Bill Josten, strategic content manager for Thomson Reuters.

PLENTY BUSY - OK, we did just make the slowdown in M&A activity sound pretty dire, but the reality may not be quite so bad. Several dealmakers at large law firms told Law.com's Patrick Smith that, while the overall M&A market might be down from 2021, there is still a lot of work to be done. It's a rate of work that, compared to any year other than 2021, would easily be considered "busy," they said, with most saying they didn't expect large staffing changes at their firms. "Looking back, 2021 was at historical levels for M&A," Paul Tiger, partner and head of U.S. transactions at Freshfields Bruckhaus Deringer, said. "But this year we are continuing to work hard. It's like coming in second at the Olympics." In interviews, dealmakers said they didn't believe the lower level of corporate work would get to a point where it significantly damaged their firm's bottom line.  Either way, law firms will continue to lean into transactions even if things do slow down, said legal consultant Kent Zimmermann. Of the 12 Am Law 100 firms that have doubled their revenue over the past 12 years, he said, 10 of them did it by bulking up their transactions practices. "Because of the rates transactions have gotten over the decades, the work it throws off to other parts of the firm, and the mountain of dry powder that private equity firms still have on the sidelines, most firms are going to still amp up the growth of their transactions practice despite the softening of deal flow," he said.

WHO GOT THE WORK?℠ - CH-Auto Technology Corp. Ltd., a Chinese-based electric vehicle manufacturer, is going public via SPAC merger with Mountain Crest Acquisition Corp. IV. As a result of the merger, CH Auto Inc. will be listed on the Nasdaq with a post-transaction equity value of approximately $1.3 billion. The transaction, announced May 2, is expected to close in the fourth quarter 2022. CH Auto is advised by Wilson Sonsini Goodrich & Rosati; JunHe LLP and a Harneys team led by Shanghai-based corporate partner Calamus Huan. Loeb & Loeb is representing Mountain Crest.  >> Read more on Law.com Radar and check out the most recent edition of Law.com's Who Got the Work?℠ column to find out which law firms and lawyers are being brought in to handle key cases and close major deals for their clients.

KINDRED SPIRIT? - Spirit Airlines and members of its board of directors were slapped with a shareholder class action Friday in New York Southern District Court in connection with the company's planned merger with Frontier Airlines. The complaint, brought by Wohl & Fruchter, alleges that Spirit's proxy filing in support of the merger agreement fails to disclose ties between Spirit's leadership and Frontier's board chairman William A. Franke. The suit also questions the circumstances behind Spirit's decision to reject a competing bid by JetBlue Airlines. Counsel have not yet appeared for the defendants. The case is 1:22-cv-03911, Marcus v. Christie et al. Stay up on the latest deals and litigation with the new Law.com.  

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