Deal activity soared to record levels in the first half of 2021, a giant leap from the first six months of 2020 that’s put this year on track to be one of the busiest periods in memory for transactions practices at the nation’s high-end law firms.
Buyers announced $2.5 trillion in deals so far this year, propelled by a resurgence of business and consumer confidence as well as mega deals and a growth in private equity work. That’s more than double the $1.2 trillion announced in the first half of 2020, according to newly released M&A advisory legal tables from Bloomberg.
The activity marks a major rebound from the deal doldrums of the early months of the global coronavirus pandemic. The surge in work has kept Big Law partners and associates in transactions practices working seemingly harder than ever and impressed even seasoned dealmakers.
“What’s gone on in the last year in the M&A market is just extraordinary,” said Andrew Nussbaum, corporate partner at Wachtell Lipton Rosen & Katz.
Perennial top dealmaker Wachtell, which did the highest volume of global deals as principal adviser in the first quarter of 2021, came out on top again for the first half.
As principal, the firm worked on 53 deals worth $257.3 billion, including Discovery Inc.’s $43 million combination with AT&T Inc. subsidiary Warner Media LLC, medical supply company Medline Industries Inc.'s $34 million sale to a private equity consortium that includes GIC Pte Ltd., Abu Dhabi Investment Authority, and the Carlyle Group Inc, as well as Kansas City Southern’s proposed merger with Canadian Pacific Railway, worth roughly $29 billion.
Simpson Thacher & Bartlett came in a close second in deal volume by principal, with 117 deals worth $257 billion. Sullivan & Cromwell, Cravath Swaine & Moore, and Latham & Watkins rounded out the top five.
In terms of deal count by principal, Kirkland & Ellis took the top spot yet again, advising on 425 deals worth $202.3 billion. Latham & Watkins, Goodwin Procter, Jones Day, and Sidley Austin were directly behind Kirkland, the country’s largest law firm by gross revenue.
Return of the Mega Deals
Deal making seems not to have slowed down from the feverish pace of the second half of 2020, according to Nussbaum, driven by pent up demand as companies waited to see the business implications of the pandemic.
“Many of these transactions were born out of what companies saw during the course of 2020 when businesses had to reassess what their priorities were, and what in some cases, their core businesses were. And so there’s a lot of, if you will, fine tuning going on,” said Frank Aquila, M&A partner at Sullivan & Cromwell.
Sullivan & Cromwell led on 75 deals in the first half of 2021 worth $218.3 billion, including representing AT&T Inc. in its deal for Warner Media and German property company Duetsche Wohnen in its $23 billion sale to rival German residential property firm Vonovia SE.
Aquila said that clients have been shedding some businesses and divisions that weren’t as core as they once thought, or making acquisitions in areas where they saw were weak during the pandemic.
This market confidence could have also contributed to the resurgence of mega deals in 2021. Over the last six months, there are 21 currently pending or completed M&A deals valued at $10 billion or more, according to Bloomberg data.
“You always see larger strategic transactions, the difference is in certain years, you see one a quarter,” Aquila said. “In periods like this, you may see two or three a week.” He cited an abundance of cash on balance sheets and low interest rates as further incentives.
Nussbaum said there could be a bit of a divergence in the mega deals between strategic M&A and private equity going forward, given that the more complex regulatory environment may make some of those mega deals riskier, at least in certain industries like pharmaceuticals or technology.
“Whereas on the private equity side, given the availability of equity financing and the availability of debt financing, it seems that whatever reluctance private equity firms had to pursue these mega deals going back one to three years has totally disappeared and the mandate seems to be put money to work,” he said.
Private Equity Power
Pending and completed global private equity deal volume reached $965 billion in the first half of 2021, according to Bloomberg data, accounting for 38.6% of all global M&A deals done so far this year.
“There has been over $500 billion more in private equity deals in the first half of 2021 compared to the first half of 2020,” said Grace Maral Burnett, Bloomberg Law legal analyst. Private equity deal volume only amounted to $414.9 billion through the the first two quarters of last year, the data said.
“That’s a lot of deals to have grabbed up,” Burnett said. It’s no surprise then that the top private equity advisor, Simpson Thacher, also made it to the top of the global announced total deals by volume ranking with 126 deals worth $317.4 billion.
Private equity deals accounted for nearly one-third of Simpson Thacher’s total deal volume over the first half of 2021, with the Wall Street firm working on 79 private equity deals worth $132 billion, with an average deal size of roughly $1.67 billion.
Latham & Watkins came in second, working on 194 deals worth $126 billion, and Kirkland followed, working on 266 deals worth $124 billion. Paul Weiss, Skadden, and Sidley Austin, rounded out the rankings.
Simpson has a broad base of both mid-market and large capital sponsors as clients in the private equity space and during the first half of the year there was a “fairly constant amount of activity,” especially in the upper mid-market, said Simpson Thacher corporate partner Anthony Vernace.
Given the existing pipeline, Vernace said he doesn’t anticipate private equity activity slowing down into the third quarter but isn’t sure what it will look like by the end of the year.
Marni Lerner, co-head of Simpson’s private equity mergers and acquisitions practice, said at some point private equity firms may see the “need to step back too” and manage their acquisitions, though that need varies among groups and sectors.
Looking ahead to the remainder of 2021, there are still some questions as to what proposed changes by the Biden administration to antitrust enforcement and the capital gains tax might mean for companies. But most dealmakers agreed that these were unlikely to stymie the M&A boom.
“It does have the feel that this is just the beginning of it,” Aquila said.