Whether they’re on skis or a sunlounger, there is no beach, mountain or fireside that can spare lawyers from the urgent calls of zealous, dealmaking executives and private equity bosses. After a breathless 2024, the City’s army of corporate lawyers are set for another year of masking their poolside backgrounds on video calls, braced for an even busier 2025.
“Sadly, we were incredibly busy in July and August. We were both on holiday and working up to 14 hours a day,” says Patrick Sarch, partner at law firm White & Case and head of its public mergers and acquisitions (M&A) division. He and Sonica Tolani, another partner at the same firm, specialise in advising activist investors.
Sleep deprivation may come with the territory for well-remunerated lawyers charged with studying the fine print of multibillion-dollar deals spanning time zones, but that “doesn’t make you popular” with your holiday companions, Sarch says.
It has been a punishing few years for City lawyers: the early pandemic brought job cuts and reduced hours as companies cut costs; then a flurry of dealmaking by private equity companies keen to pounce on depressed company values put them in demand, ultimately pushing up junior salaries, workloads and stress levels.
Sarch and Tolani are content to work around the clock when necessary but say the UK’s surprise early election brought forward a large tranche of transactions just as they had hoped for a break after a flurry of activity in spring. It is a view echoed by many of the bankers and lawyers the Observer spoke to, as they navigate a new era for global dealmaking.
A shift towards higher interest rates as central banks attempted to temper rampant inflation in 2022 ended a long period of cheap debt-fuelled deals.
“You had a lot of zombie companies in the UK who couldn’t leverage up because public market investors won’t let them,” recalls Sarch. Subsequently, their boards could not issue more shares after the pandemic triggered emergency cash calls, but also became fearful of opportunistic takeovers. “They basically couldn’t do anything right. That’s all freed up a bit,” Sarch says.
With the London stock market already under pressure from companies listing elsewhere, British assets were in the sights of foreign investors in 2024. Deals with a UK target were up 51% by value, compared with 2023, at $182bn, according to figures gathered by the London Stock Exchange Group (LSEG). The UK lagged only the US and China for inbound deals, with financial services and property companies notably in demand.
“We are seeing the beginnings of an M&A rebound in the UK,” according to Lucille Jones, a senior manager at LSEG’s Deals Intelligence arm.
Last year saw some total takeovers of stock market big beasts, including Czech billionaire Daniel Křetínský’s £3.6bn deal for Royal Mail, and mergers aimed at cutting costs, with 2,300 jobs going as a result of Aviva’s £3.7bn deal for rival insurer Direct Line.
But Tolani predicts the focus this year may be on piecemeal deals, carving out divisions of listed companies. She adds: “We’re also seeing bidders coming together to look at companies and take one piece and somebody takes the rest. There’s definitely a buildup of that.”
Companies are still expected to be under pressure from activist investors, pushing boards to offload unprofitable divisions or subsidiaries which distract from their core strategies.
Senior executives and investors repeatedly point to Unilever’s efforts to spin off its ice-cream business, which includes Ben & Jerry’s, as billionaire activist investor Nelson Peltz lurked in the background. (Plans for a sale process for the division were shelved in November.)
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Sources also talk about medical device maker Smith & Nephew, already under pressure for a break-up of its divisions from activist Cevian Capital and some of its other largest shareholders, as a target for fresh interest, as well as ITV’s studios arm.
Industry insiders believe a host of other factors could also lead to a deals boom. Donald Trump’s return to the White House is already driving up stock markets and boosting risk appetites among investors, who expect a lower tax environment. Prospects of a long period of higher rates is expected to cause both higher profits for banks and greater stress for more indebted companies.
“Friend-shoring”, where companies rearrange supply chains to sidestep some of the potential shocks from Trump’s mooted tariffs – either on imports to the US, or in retaliation on US-made exports to other markets – may also drive some significant deals, investors say. “Relatively modest sums spent on buying critical companies in one’s own supply chains could offer some shelter from the worst effects,” one institutional investor says.
In the UK, tax changes will have a significant impact following last year’s budget. Scrapping inheritance tax relief for family businesses will “accelerate sales or public listings”, says Julian Morse, co-chief executive of investment bank Cavendish, as business owners look to avoid tax when passing companies on to the next generation.
Within the M&A industry, debate is raging over the use of machine learning in dealmaking.
As Goldman Sachs, Morgan Stanley, JP Morgan and top law firms jostle for position, questions over how technology could speed up the process or drive down the costs of business are growing tense. Some junior trainees at both investment banks and law firms say they are increasingly nervous about what it could mean for their “grunt work” – including rapidly gathering information on deals.
Sarch says: “This is a really sustained M&A period, if you’re looking through a few cycles. This is like the 00s, when I was a middle-level associate going from deal to deal to deal to deal. We’re hiring at all levels: senior, middle, bottom. Everybody’s busy.”