On a warm day in late August, Mario Nigro is sitting 23 floors above downtown Toronto in a boardroom at his law ﬁrm, Blake, Cassels & Graydon LLP. The 37-year-old mergers and acquisitions associate, dressed in khaki pants and a dress shirt, is smiling as he offers biscotti and describes settling into a new house in the Dufferin and Lawrence area of the city. Today hasn’t been all that busy (“It’s Monday,” he explains) and he’s got dinner plans. Life is good.
Never mind that global newspaper headlines are screaming of a worldwide credit crunch and possible recession in the United States. Or the fact that the TSX, the Nasdaq, and the Dow have all been on a roller coaster ride. None of what is happening in the market is fazing Nigro. In fact, the sixth-year associate shows just how distant it feels to him by raising his hands in the air and pushing his palms toward the boardroom window every time he mentions the market as if to say, “out there.”
It’s hard to fault Nigro for being so upbeat. Mergers and acquisitions (commonly referred to as “M&A”) has been a hot area of corporate law for the last few years. Even in recent months, lawyers who act for companies that are either buying other companies outright, or parts of companies, have been stretched to what one M&A partner refers to as “superhuman” limits. The reason: a robust economy, and the low cost of debt. Companies have been able to borrow cheaply to ﬁnance their acquisitions.
Nigro believes work in mergers and acquisitions will always be there for him, although he acknowledges that a change in the market may change his daily workload. “You can’t preempt it,” he says. “One day you’ll wake up and the work you’ll be doing will be different.”
It’s hard to imagine a change in the market when current trends are keeping lawyers like Nigro busier than ever. The value of M&A announcements in Canada in the second quarter of 2007 was $202 billion, a record high. That’s more than double the previous record, set in the third quarter of 2006, at $89 billion. But with markets quivering over a global credit crunch, there has been talk of things slowing down. As cheap money becomes harder to come by, the flow of deals will decrease. “A month or so ago we were at a rather extraordinary peak and it was becoming fairly obvious that the market was pretty frothy,” says Doug Bryce, a partner in the M&A practice at Osler, Hoskin & Harcourt LLP. Today, things are different: “You don’t have quite that insane froth that was in the market a month or two ago,” he adds.
That’s not to say the work has stopped completely. As Bryce points out, even a 20 percent reduction in the current workload would still mean long hours for his associates. But while the deals are still plentiful, they might not be in the next few months, or next year. It may be hard to think back to a time when M&A wasn’t a busy area of the ﬁrm, but it wasn’t that long ago. “The last time we saw a real shortage of M&A activity was 2002/2003 — a year or two after the tech bubble burst,” Bryce notes. The value of M&A announcements in Canada in the third quarter of 2002 was a mere $12.4 billion.
In times of low M&A activity, another area of practice carries the large law ﬁrm: bankruptcy. Firms use their insolvency practice as a hedge against times when the economy is not as strong, says Kevin McElcheran, a leading insolvency lawyer and partner in the bankruptcy and restructuring group at McCarthy Tétrault LLP. Bryce agrees: “As a ﬁrm, we and most of our competitors deliberately design ourselves to be as recession-proof as possible. When the M&A lawyers are not as busy then the bankruptcy lawyers are very busy. During a business cycle, that tends to smooth itself out,” he says.
Some lawyers, with their career goals at the front of their minds, recognize the peaks and valleys of the market and take a calculated approach. And for those who have been betting on an upswing in bankruptcy work, their foresight may soon pay dividends.
Karen Park is a lawyer who has decided that she, like the ﬁrms, wants to be recession-proof. While the 33-year-old cannot predict what the ﬁnancial markets will do in the next ﬁve years, she is comfortable making some predictions about the market for legal services. “I like to make my next step with a view to the step beyond,” says Park. It was this strategic thinking — and an interest in getting into a bigger game — that led Park to leave the restructuring and insolvency practice at Blakes in Toronto and look for work in New York. She wanted to gain valuable M&A experience, but didn’t want to completely give up on bankruptcy, to make sure she was able to “go through the ebb and flow of the market.” She chose the bankruptcy and reorganization group at Shearman & Sterling LLP in New York City because the ﬁrm would allow her to work across disciplines. The ﬁfth-year associate is working in bankruptcy law, but still tapping into the M&A frenzy as her work now focuses on mergers and acquisitions in the context of bankruptcy.
With one eye ﬁxed on the future, Park predicts that cross-disciplinary teams of M&A and bankruptcy lawyers will be needed in the coming years to do some of the biggest and most exciting international deals. On the phone from her Manhattan ofﬁce, Park explains, “I want to be able to position myself to work seamlessly in that team, or even lead that team one day.”
And she might not have to wait very long. Since her summer arrival in New York City, there hasn’t been much time for runs through Central Park or shopping in SoHo. At the time of writing this story, Park was in the midst of a signiﬁcant cross-border deal involving a multinational company in ﬁnancial distress.
If recent movements in Toronto are any indication, bankruptcy work is heating up here in Canada, as well. “Once in a while, the insolvency practice is an important part of the ﬁrm,” says McElcheran. That time may be now. With a higher cost of debt, companies relying on borrowed money to ﬁx their problems will now have to face what’s troubling them — and that might mean insolvency.
McElcheran says ﬁrms have been getting ready for this and that there’s been some movement among senior lawyers at Toronto’s ﬁrms as they position themselves with some core bankruptcy expertise. Case in point: in a high-proﬁle acquisition of their own, McCarthys brought McElcheran over from Blakes earlier this year to expand and lead their team in this area. He’s been internally recruiting young associates, and is counting on lawyers in other areas of the ﬁrm to assist on restructuring ﬁles.
Amrit Sidhu is a woman who recently climbed Machu Picchu and is trying to work some trekking into an upcoming trip to India: she’s not the type to let life, or her career, pass her by. Sidhu began her career at Oslers, where she worked primarily on lending transactions. She found the work repetitive and went looking for new challenges. Two years ago, she joined the business law group at McCarthys, busy with M&A work. Sidhu jumped right in, and found the challenge she was looking for. “No two deals are ever alike. It’s unpredictable, but it keeps things interesting,” she says.
In a small boardroom overlooking Lake Ontario with a view of the Toronto Islands, the fourth-year associate looks a little sad to think about a coming slowdown in M&A work, but she recognizes that business law is cyclical. She holds out hope that a drop in M&A work might not affect her, but in an uncertain market, she admits she’ll have to take whatever she’s given. “I would deﬁnitely have to be prepared to be flexible,” she says.
McElcheran agrees and explains that it should be fairly easy for M&A associates to assist on restructuring and insolvency ﬁles, because the work is actually quite similar. A restructuring is essentially an acquisition, but in a distressed situation, where the bankrupt company is being sold to someone who is not insolvent.
According to Danice Kowalczyk, managing dir-ector of the New York ofﬁce of BCG Attorney Search, it’s those lawyers who are willing to work in other areas that will survive a slowdown. “Not every candidate wants to do bankruptcy for a year while the market evens itself out,” she says.
But the alternative is less palatable. In the early 2000s, many M&A specialists adapted and became what Kowalczyk calls “corporate generalists”, working in other areas of the ﬁrm. There were also layoffs, and the same could happen again.
Adam Lepofsky, founder of Toronto recruitment ﬁrm RainMaker Group, echoes Kowalczyk’s concern. He is not certain there will be work for everyone when the market turns. “We’ve seen it before,” he says. “There will be some turnover. Firms will hold on to some, but not all.” However, Lepofsky adds that a forced career evaluation, brought on by a changing economy, can be a good thing.
In the coming months associates will not be alone as they consider their next moves. Options to stay the course, diversify, or build up new expertise, are the same options their ﬁrms are exploring. As Park says, it might be difﬁcult to predict the ﬁnancial markets, but lawyers and ﬁrms can make some predictions about future demands for speciﬁc legal services. While there are unknowns ahead, some optimism remains, and no one wants to see the M&A market collapse completely. As Bryce acknowledges, “This is still our bread and butter.”
Photographs by James Pattyn