Capital Markets Lawyers Wait for Windows of War Calm to Pounce

Welcome back to the Big Law Business column. I’m Roy Strom, and today we look at Big Law’s work on initial public offerings. Sign up for Business & Practice, a free morning newsletter from Bloomberg Law.

Big Law attorneys shepherding companies to public markets have been playing a stop-and-start game as the war in Iran roils equity markets. But lawyers are confident a long list of large companies waiting to sell new shares could still produce a record year.

New public listings were mostly dormant after the US and Israel began bombing Iran in late February. Then last week, the window for initial public offerings opened after a ceasefire commenced.

Five large deals hit public markets in the US last Thursday and Friday, raising more than $5 billion, according to data from Bloomberg. Four more are expected to price this week, looking to raise another $1.9 billion, Bloomberg News reported.

All of that is before the major expected listings from SpaceX, OpenAI, Anthropic and others, which could boost IPO volumes to record levels if they all hit this year.

Still, optimism for a quick, negotiated end to the war has faded amid hostilities this week in the Strait of Hormuz. It highlights how a major business for law firms has been riding the highs and lows of international headlines.

“These macro factors are opening and closing the market it almost seems like on a daily basis,” said Bob Hayward, a partner at Kirkland & Ellis who represented two of the companies that went public last week.

The marketing roadshow for one of those companies, military drone manufacturer Aevex, was accelerated to take advantage of the relative market calm from the two-week truce, Hayward said. The Madison Dearborn Partners-backed company’s shares rose 35% in its first day of trading after raising $320 million.

“It’s a little bit of art over science on when these windows are open,” Hayward said. “But the advice I give clients is pretty blunt. You have to be prepared and ready to move at a moment’s notice.”

All of the five companies to go public last week rose in their first day of trading, averaging a 36.5% first-day gain.

Momentum in the IPO market is maintained by a handful of prominent deals trading higher, said David Peinsipp, co-chair of Cooley’s global capital markets group.

“You need a good handful of well-traded IPOs and then people really start to look at it,” Peinsipp said. “We’ve got a lot of company clients that have been rushing to the starting line and then waiting for the moment in the market. So, it’s not going to take much for a lot of folks to jump in.”

Lawyers at the largest firms advise growth-stage companies on more than just a potential IPO. They are also pursuing potential acquisitions or raising capital through private markets. Those longer-term strategies are less impacted by day-to-day headlines, and that work never stopped even amid the lack of new listings in March, lawyers said.

“We just keep marching forward regardless of what the near-term headlines look like,” said Stelios Saffos, a leader of Latham & Watkins’ capital markets and public company representation practices.

The rise of deep private credit markets and other financing options has delayed decisions to go public, leading to a record number of private companies valued over $1 billion, according to a report this week by Bloomberg Intelligence.

The number of such “unicorns” rose to 1,582 at the end of last year, up from around 1,000 at the end of 2021.

Even if some of those companies are purchased or pursue avenues other than a public listing, the sheer number of unicorns is also fueling optimism among capital markets lawyers that there will continue to be large IPOs after the likes of SpaceX and the artificial intelligence frontier labs make it to public markets.

“The level of IPO demand we are going to experience in the next year or two is unprecedented,” said Ian Schuman, who leads Latham’s capital markets and public companies representation practices. “These mega IPOs are here to stay.”

The US equity markets have so far remained resilient in the face of war and continued disruptions to global oil and gas markets. It’s not certain that the resilience will hold up.

One of the stickiest questions for the market is how long stocks can hold on if the Strait of Hormuz remains closed for months longer. Investors also seem to be baking in optimism that the largest tech companies will see a meaningful return from their massive spending on artificial intelligence.

For now, there is optimism that IPOs, at least, can keep flowing.

“When that war quiets down, the window reopens,” said Michael Kaplan, head of the corporate department at Davis Polk & Wardwell. “You have years where the window is just shut. We’re not in one of those places right now. And because of that people continue to move forward.”

Worth Your Time

On Big Deals: Gibson Dunn and Kirkland & Ellis helped steer a $60 billion pact reached between Spacex and AI coding firm Cursor, Mahira Dayal reports.

On AI: Sullivan & Cromwell apologized to a bankruptcy judge after filing a document riddled with errors it said were generated by artificial intelligence.

On Simpson Thacher: The law firm continued its raid on Kirkland by hiring a San Francisco-based partner. The firm has been adding former colleagues of Dave Nemecek since the star liability management partner left Kirkland in February.

That’s it for this week! Thanks for reading and please send me your thoughts, critiques, and tips.