Whenever we look back on history, we are presented with a neat description of what happened and why. It all makes sense, because we have the benefit of hindsight and long-term trends to explain what at the time likely felt chaotic and surprising.
We can airbrush out surprises in the legal industry, too. It was obvious that Kirkland & Ellis and Latham & Watkins would rise to the top (it wasn’t), and clear warning signs were there for firms that collapsed (they weren’t).
But some long-term trends are staring us in the face right now and offer insight into what we should expect in the coming years. The clearest is that a certain group of private equity-focused law firms are well positioned to rise up the M&A adviser league tables.
Twenty years ago, private equity-backed M&A comprised less than 4% of the value and volume of global M&A. It has grown steadily ever since, and in 2021 more than 20% of the $5.9 trillion of M&A globally was attributed to buyouts. So far in 2022 the proportion is even higher, according to data from Refinitiv.
This isn’t about a few mega buyouts skewing the tables either. When looking solely at the number of deals, buyouts have grown as a proportion of global M&A, reaching 23% in 2021. That proportion has increased in 18 of the last 20 years.
Add in the growth of private debt, private real estate and various other forms of private capital and it is clear this is only set to continue.
Private equity-focused firms have already increased their market share of M&A accordingly. In 2001, only half of the top 25 law firms for global M&A when ranked by value were also part of the top 25 advisers for global private equity-backed deals. By 2021, 19 of the top 25 firms were also among the most active advisers in private equity. It is reasonable to think that, by 2031, the two lists could be virtually the same.
The best-positioned firms are those that are already strong in private equity, because most of the biggest alternative asset managers have increasingly institutionalized advisers. It’s a difficult market to break into. Nineteen of the 20 largest European private equity acquisitions last year involved at least one of these tried and trusted firms: Kirkland & Ellis; Simpson Thacher & Bartlett; Freshfields Bruckhaus Deringer; Latham & Watkins; Clifford Chance; Weil Gotshal & Manges; White & Case; and Linklaters.
U.S.-headquartered firms have an advantage, given how many of the investor funds and leaders of private capital firms are there. There has been a clear shift to U.S.-based firms in the Refinitiv league tables. In 2001, eight of the top 25 firms for private equity deals were U.S.-based firms. By 2021, that number had increased to 19.
So, which firms are already good in private equity, based in the U.S. and still have plenty of room to climb higher in the M&A rankings in the coming years?
Gibson, Dunn & Crutcher, Debevoise & Plimpton, Ropes & Gray and Goodwin Procter are all smart bets. Each firm is in the top 20 for private equity deals and has strong U.S. links to buyout firms, which they can theoretically broaden out to other parts of the world. None ranks above 15th for global M&A, which means they have room to improve their positions.
Granted, it may be hard to imagine these firms rivaling the likes of Cravath, Swaine & Moore today. But perhaps, in years to come, people will look back and say, “Well, that was obvious.”
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