August 09, 2010
Notice to Law Students: Get ready for the coming M&A boom
Posted by Gordon Smith

While I was teaching in London this past month, I told my students -- most of whom had just finished their first year of law school -- that their job prospects would brighten substantially over the next two years, led by a boom in mergers and acquisitions. My prediction was accompanied by the usual disclaimers: the views expressed here are entirely impressionistic and not based on systematic study or expertise. Nevertheless, the stars seem to be aligning. Banks are strengthening their balance sheets and becoming profitable. The weak economy has exposed vulnerable companies, but it has helped many other companies to become leaner. Consider the following from today's FT

In a buoyant second-quarter results season, two-thirds of European groups beat analyst forecasts; predictions suggest that leading American companies will report record profits this year. Businesses are flush with cash as they reap the benefits of rigorous cost-cutting and borrowing rates at historic lows. 

Even the most bullish executives privately acknowledge that there are risks to the recovery as some of the reasons underlying it evaporate and concerns persist over how developed countries tackle their public debt. But for now many of them are basking in a remarkable corporate renaissance in which size is a factor. “The strong are getting stronger and the weak are getting weaker. The competitive advantage has gone to the bigger companies,” says the chief executive of one group with $100bn revenues.

With the exception of Europe, global merger activity has already picked up this year. And John Carney's latest at CNBC suggests that at least some lawyers on getting ready:

The move of the Hanrahan team from midtown’s Lipstick building to One Chase Manhattan Plaza, in the heart of the financial district, shows that New York law firms are prepping for a big comeback for M&A debt financing. It seems likely that the clients of these lawyers—big financial institutions—are letting them know that lending standards may once again be easing and credit becoming more available for leveraged finance driven deals.

As John observes, we are projecting based on anecdote, and the risks are still grave, but there seems to be some cause for optimism.

UPDATE: Larry Ribsten posted on John's story over at Truth on the Market, asking "Would a big increase in m & a activity mean a rebirth of Big Law?" Larry notes that this is area of legal practice in which Big Law is thought to have big advantages, but he is still wondering about the effect of outsourcing and technology. It's worth reading his Death of Big Law to see the argument in full.

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