The demand for two major Big Law “products” is on a sharp decline, according to a recent report from Bloomberg Law. Initial public offerings (IPOs) are down a staggering 90% from this time last year, and mergers and acquisitions (M&A) have fallen off 28.5% through the first three quarters of 2022.
Based on some estimates, this equates to a roughly $575 million loss for law firms across those two product lines this year.
According to data compiled by Bloomberg and an analysis by Bloomberg Law — and thanks to the fact that newly public companies are required to tell the Securities and Exchange Commission (SEC) how much they paid lawyers to help list their shares — we know that in the first three quarters of last year, a total of 724 U.S. companies paid their lawyers $640 million for work on IPO registrations.
In the first three quarters of this year, meanwhile, 66 companies reported paying their lawyers $64 million — just 10% of last year’s total lawyer fees, and a difference of roughly $575 million.
Naturally, however, this cannot be seen as an absolute loss. Law firm partners are quick to point out that precipitous drops like these in a few products do not equate to a one-to-one hit to their gross revenues. Top law firms often have more than enough work to keep them busy, and the dearth of M&A deals and IPO work is simply filled with other business that they did not have the bandwidth to take on previously.
To be sure, the nosediving legal fees mark an end to what had been a steady expansion of IPO fees for U.S. law firms. Those fees had increased from $207 million in 2018 to $308 million in 2020 before they more than doubled in 2021. This had mainly come as a result of a boom in IPOs as well as in special purpose acquisition companies (SPACs), or shell corporations listed on a stock exchange with the purpose of acquiring private companies, thus making them public without going through the traditional IPO process
But none of 2021’s 18 busiest firms have suffered revenue declines of more than 3% this year, when subtracting their record IPO fees last year from their total revenue. This demonstrates just how important it is for law firms to diversify their businesses, and how dangerous it could potentially be to rely primarily on one or several boom-and-bust prone product lines.