Simpson Thacher & Bartlett is once again Big Law’s top mergers and acquisitions adviser as global deals activity fell in the third quarter to its lowest mark since 2020.
Worldwide deals totaled $2.8 trillion through the third quarter of 2022, dropping 28.5% from the same nine-month stretch year earlier.
“There’s just too much uncertainty everywhere you turn right now and that makes it very complicated to sign new deals,” said Eric Swedenburg, co-head of Simpson Thacher’s M&A practice.
Deals activity dropped to $704 billion in the third quarter, a low not seen since the second quarter of 2020 when global markets ground to halt due to the coronavirus pandemic. The markets quickly rebounded as the pandemic took hold, propelling global M&A activity to record highs over the last two years.
The latest slowdown marks the end of that frenzied transactional market, which fueled double-digit growth in revenue and profits per equity partner for several top law firms.
“For a long time, more or less, all the drivers were hitting on all cylinders,” said Kirkland & Ellis corporate partner Sarkis Jebejian. “We’re now in a more mixed period and, while some of the traditional drivers are very much still there, some of them have gone in the other direction.”
Interest rate uncertainty and inflation fears are casting doubts on the equity and debt markets, deal lawyers said, coupled with more US regulatory scrutiny, particularly of vertical acquisitions.
That’s dampened the market and left dealmakers wondering what lies ahead.
“In all sorts of areas people are thinking about whether this is just a reversion to the mean, or if it is going to get worse,” Jebejian said.
Top of the Table
Simpson Thacher topped the Bloomberg league tables in total deal volume by principal for the third-straight quarter, advising on 142 deals worth $346.7 billion so far in 2022.
The Wall Street firm advised on many of the largest deals so far this year, including VMware Inc.’s $70.4 billion acquisition of Broadcom Inc., Microsoft Corp.’s $68.7 billion acquisition of Activision Blizzard Inc., and Elon Musk’s on, off, and now revived purchase of Twitter Inc. for $44 billion.
“We’ve got a deep and talented group of deal lawyers, and you couple that with a roster of terrific clients, many of whom are the most creative dealmakers in the business, and I think that’s what propelled our success for the first three quarters,” Swedenberg said.
Wachtell Lipton Rosen & Katz followed, advising on 57 deals worth $218 billion. Kirkland & Ellis, Latham & Watkins and Skadden Arps Slate Meagher & Flom rounded out the top five firms by deal volume.
Perennial deal machine Kirkland & Ellis again topped global deals announced by deal count by principal, advising on 608 deals worth $214.6 billion.
The Chicago-founded firm advised Vista Equity Partners on its $16.5 billion acquisition of software company Citrix Systems, along with an affiliate of Elliott Investment Management earlier this year. In September, the firm advised private equity real estate investor Oak Street in an acquisition with GIC of STORE Capital Corp. for $14 billion.
“We, as a firm—across the board, across all our offices—have built an M&A practice that’s really designed to be successful throughout different market cycles, and because we’re not focused on any particular industry or any sector of the market, we are able to go where the activity is,” Jebejian said.
Silicon Valley-based Cooley LLP jumped up the deal count list, advising on 435 deals worth $43 billion, followed by Latham & Watkins, Goodwin Procter and Wilson Sonsini Goodrich & Rosati.
Cooley’s M&A practice is smaller than some of the other firms atop the deal count rankings, said Barbara Borden, the group’s co-chair.
“It’s great when we can punch above our size,” Borden said.
Silicon Valley-founded Cooley is know for its work in the technology and life sciences space. Tech was a bright spot in the otherwise down M&A market, accounting for $526.3 billion across the first three quarters of 2022.
The firm’s M&A work feeds off of a large and diversified base of corporate clients, both public and private, rather than concentrating on a few big players, Borden said. She noted that the firm also works with many repeat buy-side clients that are not a part of its day-to-day corporate client base.
‘Choppier Year, Choppier Market’
Deal activity reached $1.01 trillion in the first quarter of this year, plummeting 40% from the previous quarter.
Activity rebounded slightly in the second quarter, with deals reaching $1.07 trillion before falling again to $704 billion over the three months ending in September.
Private equity deals accounted for $1.08 trillion so far in 2022, compared to $1.56 trillion over the same time period in 2021.
“Anyone who looks at the numbers will see that it has been a choppier year and a choppier market for M&A,” Jebejian said.
SPACs were responsible for a significant portion of deal value last year, as many transactions had to get done in the acquisition window after an initial public offering, said Iman Anabtawi, a UCLA law professor who specializes in mergers and acquisitions.
The SPAC craze has since all but halted . Interest rate uncertainty and concerns about the cost of financing and earnings volatility are making people a lot more cautious.
“When there’s uncertainty, there’s a lot more hesitancy to sign deals,” Anabtawi said.
Some bright spots still driving deals include the strengthening of supply chains and the narrowing of the IPO window, which might prompt sellers to look at M&A as an exit strategy, she said.
Watching the ‘Dip’
Clients are still looking to put capital to work through deals, Kirkland’s Jebejian said. But financing is becoming tougher and more expensive and valuation alignment poses a hurdle.
“I would argue that we are back to more normal markets, although there may be a slight depression because of valuation concerns,” Borden added.
Coupled with equity and debt market volatility is the enhanced regulatory environment that dealmakers now must navigate.
The slower third quarter is likely a sign of what’s ahead, the dealmakers said.
“I will not be surprised if what we see over the course of the next quarter, or into the beginning of next year, is a little bit of a dip below normal,” Swedenburg said.