Legal market overview in United States
Some $3.5tn of M&A deals were closed globally in 2018, the third largest on record since 2001. Notably, Chinese acquisitions of US businesses dropped by 94.6% to $3bn from a high of $55.3bn in 2016 with China turning its attentions to Europe instead where deal activity increased significantly. Trade tensions and political instability have clearly had an effect, though have not significantly dampened transaction activity.
Valuations were pushed up by rival bidding in a number of deals, including in Comcast’s takeover of Sky where it increased its offer in the face of competition from 21st Century Fox. Moreover, the availability of relatively cheap finance, thanks to low interest rates, has also given corporates access to capital to make attractive offers.
Large cap deals remain dominated by Wall Street’s traditional elite law firms, including Cravath, Swaine & Moore LLP, Skadden, Arps, Slate, Meagher & Flom LLP and Wachtell, Lipton, Rosen & Katz. Their ascendancy does not appear to be under threat, though firms such as Kirkland & Ellis LLP and Paul, Weiss, Rifkind, Wharton & Garrison LLP are becoming increasingly viable competitors, especially as these firms have recruited wisely in recent years.
Other firms that made headway in 2018 include Gibson, Dunn & Crutcher LLP bringing in a four-partner team, including George Stamas, from Kirkland & Ellis LLP. Baker Botts L.L.P. hired a four-partner team from Vinson & Elkins LLP, including Mike Rosenwasser, Michael Swidler and Adorys Velazquez. Moreover, Willkie Farr & Gallagher LLP hired Matthew Rizzo and Jessica Sheridan from Sidley Austin LLP in New York, and Archie Fallon and Steven Torello joined from King & Spalding LLP and DLA Piper LLP (US) respectively. Elsewhere, Allen & Overy LLP recruited experienced partner Stephen Besen from Shearman & Sterling LLP.
The US middle market remained one of the most active areas for M&A deals in 2018; compared to 2017’s third quarter, domestic M&A activity increased by over 30% during the third quarter of 2018. This stream of activity has been largely driven by sector convergence and intense interest in the technology sector. Private equity-backed transactions were especially vibrant, while other sectors of particular note have been healthcare, financial services, manufacturing, consumer products and retail. Indeed, The ever-increasing number of private equity firms illustrates the health of the sector. Private equity fundraising continues at a faster rate that they are able to invest capital, with many funds sitting on significant reserves of dry powder.
That said, it is a competitive market for assets, as private equity firms diversify their investment strategies, and many large-cap focused funds move into the middle market or even into the growth investments and venture capital space. A growth in add-on acquisitions has also resulted from the high asset prices.
Buoyed by the US’ 2018 tax reform (the largest piece of tax reform legislation in over three decades) and corporate liquidity, companies are expected to grow again in 2019 through acquisitions, with a healthy M&A pipeline anticipated across all sectors; this is notwithstanding rising interest rates, increased global protectionism (including trade tensions with China), stormy markets and US companies’ regulatory concerns.
Headline mergers among prominent law firms include Milwaukee-based Foley & Lardner LLP merging with Dallas-based Gardere Wynne Sewell LLP in 2018; and St Louis-based Bryan Cave LLP and UK-headquartered Berwin Leighton Paisner LLP also joining up to form Bryan Cave Leighton Paisner LLP in 2018.
Significant lateral moves included Sheppard, Mullin, Richter & Hampton LLP hiring Jordan Hamburger, who has healthcare and financial services deal experience, and Eric Newsom for the Century City and San Francisco offices, respectively, from Manatt, Phelps & Phillips, LLP, while John Booher was recruited in Silicon Valley from Hogan Lovells US LLP. Meanwhile, at Squire Patton Boggs' new Atlanta office, widely respected corporate and M&A lawyer Wayne Bradley and office managing partner Ann-Marie McGaughey were hired from Dentons; and recent growth for DLA Piper LLP (US)'s Austin corporate practice included the arrival of a team of six Jackson Walker, L.L.P. partners, Steven Bartz joining in Dallas from Thompson & Knight LLP, and Emilio Ragosa and Kevin Grant recruited in New Jersey from Morgan, Lewis & Bockius LLP, where Ragosa formerly headed the corporate group in Princeton.
Other notable moves include Fenwick & West LLP's veteran technology dealmaker Gregory Roussel leaving for Latham & Watkins LLP's Silicon Valley office and technology group partner Scott Joachim joining Goodwin in its Silicon Valley and New York offices; Jared Hershberg leaving Reed Smith LLP for Greenberg Traurig, LLP's New York office; and New York-based M&A technology and life sciences deal specialist David Schwartz leaving Hughes Hubbard & Reed LLP for Orrick, Herrington & Sutcliffe LLP.
Finally, we have introduced a few new rankings this year. Now separated into it’s own category in our guide, shareholder activism continues at a fast clip, with a key market trend being its internationalization – American lawyers are being increasingly called upon to advise on cross-border matters, with activist hedge funds taking this strategy into parts of the world where such campaigns are culturally alien. Turning to more local work, trends have included more asset managers adding activism to their arsenal, as well as a growth in activism around M&A deals, typically concerning pricing.
In traditional governance issues, the #MeToo movement and broader equalities initiatives have been visible, with several high-profile exits on those themes. Thankfully, the conclusion of the government shutdown in late January 2019 gave rise to relief on the public company securities front; in addition to the more visible issue of the shutdown holding up IPOs, the slowdown at the SEC could have led to lengthier and more challenging annual general meetings, as SEC consent to winnow down shareholder proposals would not have been forthcoming.
The brand new section this year is the Delaware law section. Delaware also continues to be without serious competition as a favorable jurisdiction for incorporation in the United States, not just for tax reasons, but also due to the extremely strong reputation of the Delaware Court of Chancery. In the Delaware section, readers will find a cadre of independent firms that provide specialized advice on the company law of the First State.