Companies have slowed their IPOs this year, ending a lucrative run for law firms and a talent war for IPO attorneys.
Bloomberg data show that US IPOs raised $14.6 billion in the first half of the year, down from $167 billion last year.
The downturn is the largest in recent memory for a boom-and-bust legal sector. The dramatic swing is driven in large part by SPACs, which raised more than $100 billion in the first half of last year.
Lawyers cited a bear market that spooked buyers and sellers of newly listed shares. The S&P 500 had its worst first-half performance since 1970, and the US Federal Reserve is raising interest rates to tame inflation, flushing out easy money hype from the pandemic.
Big firms with large capital markets groups have slowed or stopped hiring. After two years of scrambling to recruit and retain talent, the market has slowed.
David Goldschmidt, global head of Skadden’s capital markets group, says the business is cyclical and will return. When and what will prompt its return?
Top 50 law firms’ capital markets hiring is down a quarter to a third from a year ago, according to Firm Prospects. Firm Prospects said these firms hired 34 partners and 117 associates in capital markets. The same period last year saw 45 partners and 176 associates hired.
The slowdown may hurt firms’ bottom lines, but it may allow lawyers to return to a more sustainable workload. Some associates feared burnout due to the boom’s long hours, despite bonuses and pay raises.
Mitch Nussbaum, vice chair of Loeb & Loeb’s capital markets and corporate department, said people are out more this summer.
No firm advised more than 30 IPOs globally in the first half. Bloomberg data shows 10 firms crossed that threshold last year.
Only Maples & Calder, Weil Gotshal & Manges, and Davis Polk & Wardwell helped US issuers raise more than $1 billion in the first half. Maples & Calder advises Cayman Islands SPAC IPOs.
Underwriters faced similar problems. Davis Polk advised on 11 global deals, down from 100 last year. Latham & Watkins advised underwriters on fewer than three deals in the first half compared to 53 last year.
The washout won’t affect Latham’s long-term strategy, said Ian Schuman. The firm is “selectively” hiring lawyers and managing public company work. Schuman said the firm added 100 public clients last year.
“It’s a long-term strategy; the markets will open. When they do, we’ll need everyone to help, said Schuman. Many companies are waiting to go public until volatility subsides.
Skadden’s Goldschmidt said lateral hiring is “judicious.”
Ellenoff Grossman, Ropes & Gray, and Davis Polk were the busiest US underwriters. All three advised $2 billion-plus deals. SPAC is Ellenoff Grossman’s specialty.
Michael Kaplan, head of Davis Polk’s corporate department, said, “In capital markets, it’s not like last year.” The 4th of July was quiet.
SPACs’ rise and fall are a major cause of IPO value decline. US SPACs raised more than $100 billion in 2021 and $10 billion this year.
Proposed SEC rules have roiled the SPAC market. Lawyers say the rules, which add underwriter liability, will increase the cost of blank check mergers. Bank of America, Goldman Sachs, and Citigroup have halted SPAC activity due to the SEC’s proposal.
The SPAC bust is one reason why this year is different from last for lawyers who are now taking vacations, commuting to work, and not working nights and weekends.
Joel Rubinstein, a partner in White & Case’s capital markets group, said the end of 2020 and early 2021 were “unsustainable.” People aren’t panicking.