The pandemic, higher interest rates, and geopolitical tensions have led to a decrease in the profitability of major US law firms, as dealmaking has slowed. According to an article in the Financial Times, pay for partners at some of the most powerful law firms in the US dropped sharply last year. Partners at Latham & Watkins, the world’s second-highest grossing firm, took home an average of $5.1 million in profit shares, down from $5.7 million the previous year. The firm’s revenues also slipped by 3%, to $5.3 billion.

New York law firms, which generate large revenues from mergers and acquisitions (M&A), were also affected. Shearman & Sterling’s profits per equity partner fell 17.5%, while Cadwalader, Wickersham & Taft, a 230-year-old Wall Street firm, took home almost 30% less than in the previous year. Davis Polk & Wardwell, a Manhattan-based firm that specializes in M&A, also suffered, with equity partners taking home 21% less in profit shares.

Despite this trend, some firms managed to increase their revenue by pivoting to other areas, such as litigation and restructuring. Kirkland & Ellis, the world’s largest law firm by revenue, weathered the slump in M&A in part by becoming a go-to adviser on crypto bankruptcies. Partner Joshua Sussberg represented three major crypto exchanges that filed for bankruptcy protection – Voyager, Celsius Network, and BlockFi. Kirkland’s top partners took home an average of $7.5 million in profit shares, according to data from AmLaw.

Legal recruiters in New York have pointed to the decline in M&A activity, as the primary cause for the reduction in profits. According to Michelle Fivel, a legal recruiter at Major, Lindsey & Africa, deal flow is off, and corporate departments are significantly down from where they were last year. Transactional partners have told her that it’s incredibly challenging, if not impossible, to price deals given the current state of the economy, with inflation and unsettled interest rates.

Despite the challenging landscape, some experts believe that the slowdown in dealmaking may be temporary. They expect that opportunistic deals will resume, and M&A activity will once again drive the engine for many of the biggest law firms. #lawfirms #dealmaking #MandA #competitiveintelligence