According to a report published on law.com on October 6, 2016, “global and European M&A deal volumes fell to their lowest levels for three years during the third quarter of 2016, following Britain’s vote to leave the European Union this June. Mergermarket data shows that 3,595 global deals were announced during Q3, the lowest quarterly figure since the second quarter of 2013 (3,546), and the worst Q3 since since 2012, when 3,296 deals were announced. Global deal volume fell by more than 20 percent on Q3 last year, when 4,501 transactions were announced. Meanwhile, the European market saw 1,323 deals during Q3 – the lowest figure since Q3 2012 (1,271). Total deal values were also affected, with $8.13 trillion worth of global deals announced – 15 percent down on the same period last year, when total deal values stood at $9.58 trillion.” This report has naturally sent chills down the spines of some of our attorneys. So, how worried should we be? Is the sky now really falling?
The answer in our view is yes and no depending on the strength of your firm’s platform, which is essentially a function of its current financial and cultural health, its ability to withstand short-term turbulence, and the extent to which it is balanced and diversified in terms of practice areas and geographic scope. To put Brexit in perspective, BigLaw has recovered from other significant turbulence over the last few years, including, since 1999, the bursting of the dot.com bubble, September 11, Enron, WorldCom, the Iraq Wars, and the CMBS frauds leading to our most recent financial crisis. With respect to Brexit, White & Case M&A global co-head John Reiss and Freshfields corporate head Simon Marchant offer the following calming observations: “After Brexit,” says Reiss, “commentators struck the death knell for M&A. It has had some impact, particularly on certain industries in the U.K., but its impact is, and will be, limited.” Marchant similarly posits: “What we saw during the aftermath of the financial crisis was that the market and clients can absorb quite a lot of uncertainty and nevertheless get on with their business…” Id. See also an article published shortly after the Brexit vote in the Financial Review entitled: London Law Firms Shake Off Brexit as Revenue Rises: “The elite group of “magic circle” law firms with headquarters in London increased their revenues last year and signaled that the global nature of their work would help them weather any UK downturn resulting from its decision to leave the EU… Andrew Ballheimer, A&O’s global managing partner, called Brexit “the largest demerger in history”, adding that it would be “unbelievably complex”. He stressed that A&O’s business was “well hedged”, with just 35 per cent of revenues coming from Britain. Matthew Layton, managing partner at Clifford Chance, said his firm too was “well hedged” to withstand any future UK slowdown.”
This is not to say, however, that the decreased global deal flow attributed to Brexit will not effect any of our BigLaw players. To the contrary, our weaker and less balanced and hedged firms may indeed not survive the related turbulence. We remind our clients that since 1999, BigLaw has suffered fatalities at the rate of about one AmLaw 100 firm every one-and-a-half years, including the following once venerable players: Brobeck, Thelen, Heller Ehrman, Dreier, Thacher Proffitt, McKee Nelson, Howrey, Wolf Block, Dewey & LeBoeuf and most recently Bingham & McCutcheon. Whether in each of these cases the ultimately fatal turbulence was more dot.com-related (Brobeck, Thelen, Heller), financial crisis-related (Thacher Proffitt, McKee Nelson), cultural toxicity-related (Dreier) or more a combination of market and cultural factors (Howrey, Dewey & Bingham), the bottom line remains that the landscape of BigLaw is changing before our eyes and the demise of the next BigLaw firm is not a matter of if, but when.
As we noted in a prior post, there are numerous signs which may point to BigLaw firm instability. See 37 Signs That You Law Firm May Be Sinking. In short, we always advise our attorneys to be wary of potential red flags with respect to the stability of your firm’s platform, to stay current as to the relative financial and cultural health of competing firms, and to be in as good a position as possible to jump to a more stable ship if the need arises.