Dieter A. Schmitz
Dieter A. Schmitz
R. Scott Falk
R. Scott Falk
Brian W. Duwe
Brian W. Duwe

Following years of unmet expectations for mergers and acquisitions activity, predictions for a strong year ahead in 2015 may not be so biased by wishful thinking.

That’s because M&A lawyers were busier last year than they have been since 2007 — after at least three years from 2010 to 2013 when market prognosticators’ optimistic outlooks were dashed by stagnant M&A levels.

“I bet if you go back and look, the (stories) would all look identical,” said Brian W. Duwe, head of Skadden, Arps, Slate, Meagher & Flom LLP’s Chicago office and an M&A partner.

But last year finally played to the script, and local lawyers expect similarly bright M&A levels this year. That could help ease concerns that the mostly flat years from 2009 to 2013 were a post-recession new normal.

Global M&A value last year was up 48 percent from 2013, according to Mergermarket, reaching $3.2 trillion. The post-2007 high was $2.4 trillion in 2008, and levels plateaued at slightly above $2 trillion since 2009.

“I think we will see the current conditions continuing very much into 2015, and I don’t, as we sit today, see anything likely to really undermine that,” Duwe said.

U.S. law firms were particularly busy last year. Activity in the U.S., always the largest M&A market, saw the largest year-on-year increase of any region — 57 percent — as the domestic economy outpaced the rest of the world.

Local M&A lawyers said the surge was a result of numerous factors that continue to exist. All-time highs in the stock market give public companies an incentive to spend their stock. Private equity firms, looking to unload firms they had owned for longer than they planned, are taking advantage of that demand. And corporate earnings continue to grow.

“As long as there is confidence that the quality of earnings in these target companies is repeatable, defensible and reliable, I think you’ll see the buy-side market being very robust,” said R. Scott Falk, an M&A partner at Kirkland & Ellis LLP. “Which is very good for sellers.”

And law firms.

Firms with a large Chicago presence that ranked highly in the Mergermarket league table by value were:

  • Skadden, which ranked No. 1 by deal value globally and domestically.
  • Latham & Watkins LLP finished sixth overall and seventh in the U.S.
  • Jones, Day ranked No. 11 globally and No. 10 in the U.S.
  • Kirkland & Ellis came in at No. 14 globally and No. 11 in the U.S.

Some firms with large offices in Chicago did even better when ranked by the number of deals for which they served as advisers. DLA Piper LLP ranked No. 1 globally, followed by Latham & Watkins; Kirkland; Jones, Day; and Baker & McKenzie LLP.

Kirkland also continued to lead all firms in private equity buyouts both by volume (133 deals) and value ($44 billion). Latham & Watkins ranked second in both categories.

“There’s no question that if 2014 was anything, it was the year of the seller,” Kirkland & Ellis’ Falk said. “And they certainly had market forces working in their favor. So sell-side engagements were up, and bid opportunities on the buy side were up.”

Falk said that does not mean there will be a 2015 swoon.

“There are still many (private equity) firms that are holding onto portfolio companies beyond the date on which they were hoping to harvest that investment,” he said. “And so there are still plenty of properties to be sold in 2015.”

The Mergermarket report said a growth in the number and size of cross-border deals was a significant driver in the overall M&A increase. Cross-border deals last year hit a record by deal count and were the second highest on record by value. More than 5,500 deals amounted to $1.4 trillion, representing an 83 percent increase in value from 2013.

The report noted that European companies were especially active in purchasing U.S. firms, with Europe-to-U.S. deal flow setting a record.

Dieter A. Schmitz, a partner at Baker & McKenzie who often works in Europe, expects that trend to continue.

Speaking in German, he recounted a nickname people there used for the U.S.: “The land of unlimited opportunity.”

“That continues to be what I hear all the time,” Schmitz said. “This is truly the global engine, and every multi-national needs to have the U.S. as one of their top priorities.”

Baker & McKenzie has capitalized on that trend, ranking No. 1 in cross-border deals by volume for the second year in a row in a separate report by Thomson Reuters.

“I think that shows that our firm strategy is nicely aligned with what corporate strategy is,” Schmitz said.

Skadden’s Duwe said M&A this year will continue to be driven by companies seeking to grow their geographic footprint.

“To obtain that kind of geographic reach and critical mass to be competitive in those kinds of consolidating markets, you need to be acquisitive or be acquired,” he said. “And that tension, I think, pushes people to doing deals.”