The deal market has returned, as big as Bill Clinton’s fabled appetites. Not since 2000, the last year of the Clinton presidency, have the transactional and equity markets been so fat.
The bounce isn’t taking the markets back to the frothy levels of the late 1990s, but will certainly help inflate the revenues of dealmaking firms, such as Simpson Thacher & Bartlett and Skadden, Arps, Slate, Meagher & Flom. Simpson and Skadden, for example, placed second and third, respectively, in the mergers and acquisitions league table for principal’s counsel, based on the value of deals. (Wachtell, Lipton, Rosen & Katz was first.) In the high-yield market, Skadden and Simpson ranked first and second, respectively, in their work for issuers, based on the number of deals they handled.
December was the kindest month for corporate transactions. Fifteen percent of the value of U.S. deals last year came in the final month. For the year, volume topped $830 billion, up sharply from $570 billion in 2003 but less than half the 2000 total. Nearly half the deals were concentrated in three markets-financial services, telecommunications, and energy and power.
Private equity funds, flush with proceeds from fund-raising campaigns, helped power the market. Leveraged buyouts accounted for 8 percent of the announced deals, the highest level since 1989 and more than twice the percentage in 2003. Simpson Thacher (with $22 billion of deals) and Weil, Gotshal & Manges ($10 billion) top our private equity league table.
That work is not going away anytime soon. There may be as much as $100 billion in uninvested capital, by some estimates, in private equity funds. Rates on high-yield debt, which round out the financing of these deals, are historically low. But with so much easy money sloshing around, how long can the good times last before deals start to go bad? The grim reapers of the bankruptcy and reorganization bar are looking on the horizon for the next bubble to burst. They are winding down their work from the Enron era, and while fees keep rolling in, new work does not.