Wall Street law firms are suffering through a historic low for US initial public offerings, forcing attorneys to advise clients on lower-profile work while waiting for markets to thaw.
Companies raised $9.4 billion in US initial public offerings through the first three quarters of 2022, far below last year’s pace that brought in a record $190 billion. Capital raising in the third quarter, excluding blank-check deals, plumbed depths not seen since 2008, data compiled by Bloomberg shows.
“It’s certainly a dramatic drop-off in activity,” said Emily Roberts, a Davis Polk & Wardwell partner in Northern California. Deals are “well below what we would think of as a normal year,” she said.
Lawyers who advise on IPOs said the market has been buffeted by the same economic and geopolitical headwinds that have also sent M&A levels plummeting—another shock to law firm revenues. The challenges include the Federal Reserve’s push to combat inflation by raising interest rates; a war in Ukraine; and fears of a near-term recession.
Davis Polk advised on more than 110 IPOs at this time a year ago, combining work for companies and underwriters. This year, that figure is 11, according to data compiled by Bloomberg.
That’s better than most of the top-tier competitors, but not by much.
Latham & Watkins, Kirkland & Ellis, Skadden, Arps, Slate, Meagher & Flom and Ropes & Gray have all advised five or fewer companies and underwriters so far this year on US IPOs, according to data compiled by Bloomberg.
That represents a huge fall for firms that all advised between 60 and 100 IPOs at this time last year.
“Until we can see market stability, you’re going to see IPOs stay on the sidelines, and high-yield deals stay on the sidelines,” said Ian Schuman, global chair of Latham & Watkins capital markets practice. “Public capital markets transactions will be relatively muted in the near term.”
IPO market headwinds include fallout from a bust in blank-check companies, a bear market in stocks, and severe under-performance for companies that went public during the boom last year.
Capital markets partners expect some profitable companies to test the IPO market by the end of the year, but they aren’t anticipating a full rebound. Still, they said a list of companies are preparing for the public markets by filing confidential registration statements with the US Securities and Exchange Commission, which will allow them to pounce if the market shifts.
“Volatility is never the IPO market’s friend, and some clarity and stability on some of these issues would be quite helpful,” said Michael Zeidel, who leads the capital markets group in the Americas for Skadden, Arps, Slate, Meagher & Flom.
Lawyers said they have stayed busy helping young companies find new financing avenues, such as an additional private funding round.
More companies are inquiring about stock repurchase programs, and the plethora of newly public companies from last year are providing a source of revenue for law firms who advise on reporting requirements and other aspects of being public.
Despite the doldrums in the IPO market, Schuman said Latham is investing in the capital markets practice, with the group recently hiring Colin Stretch, the former general counsel of Facebook, and Michele Anderson, who spent more than 20 years at the SEC.
“Capital markets and public company representation is a means by which we establish relationships with great, fast-growing companies,” Schuman said. “Nothing’s changed in that respect. It will come back eventually. The question is just: When?”
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