‘The profitability of firms operating in the US is very high. If that continues to grow not least because the exchange rate has weakened our ability to be dollar-profitable, then sure it’s going to change how people look at investments.’ Tamara Box, Reed Smith
Global 100 leaders and corporate stars give their prognosis on how the market will shape up in 2023
The bottom line
‘You don’t pay your bills with revenues, you pay your bills with profits, but there’s a big issue because operating expenditures have gone up massively because of the pay rises. When that happens, and your revenues are flattening out, that has a really big impact on firms’ margins. You are going to see firms starting to manage their headcounts.’
Jason Glover, London managing partner, Simpson Thacher
Feeding frenzy
‘It wasn’t the frenzy of 2021 but it has still been extremely active and it’s in part because of the way the financial industry has been structured, in the sense that when there’s softness in one area rebalancing has to take place and capital still needs to be deployed, but at different prices, and it might extend the time needed in order to get those deals done.’
Mary Kuusisto, London head, Proskauer
Exchange woes
‘The profitability of the firms operating predominantly in the US is very high, largely unmatched anywhere else. And so, if that continues to grow not least because the exchange rate has weakened more global firms’ ability to be dollar-profitable, then sure it’s going to affect how such firms look at investments – and where they put people and what they do.’
Tamara Box, EME managing partner, Reed Smith
Soft deal
‘The strong dollar has caused a number of US investors to stay a little bit deeper in the markets than others might be given how far the dollar’s spending power goes at the moment. We’re seeing some opportunistic plays on currency as well as underlying business. It’s hard to see any pocket of Europe that doesn’t experience some sort of recession in the coming months. That’s why we’re likely to see more softness in the deal environment, for sure. How that balances out with activity levels in other areas, we’ll see.’
Tom Thesing, London managing partner, Sidley
Seismic shift
‘There was a sense at one time that US firms majored on private equity and leveraged finance but that has shifted as firms like ours have invested in the breadth and depth of their practice. For example, infrastructure used to be the preserve of the Magic Circle, and now several US firms, including ourselves, are highly active in that space. Mainstream M&A was also traditionally the preserve of the Magic Circle, but this year we advised on the purchase of Chelsea FC. A few years ago, it would have been unthinkable that it would not be a Magic Circle deal.’
Stephen Kensell, London managing partner, Latham & Watkins
Back to life
‘The year overall has been pretty consistent. But it has been a post-pandemic year in the sense that it’s gone back to a more cyclical nature of workflow that we had pre-pandemic. So as we expected, we had a quieter summer than in the past two years because it felt like the City was taking a proper holiday. Coming out of the summer it’s come back to life again.’
Melissa Fogarty, London joint head of corporate, Clifford Chance
Sign of the times
‘There are worrying signs for those investing into commercial property. It’s a challenging time, because we’re seeing some decline in deal activity, only we’re not yet seeing staggering levels of restructuring, although it is coming. I expect the delay is due to high pre-existing liquidity levels in funds and new US investment propping up market (taking advantage of the current exchange rate). I’ve never seen anything quite like this market dynamic, and I’ve been around for a long while. Globally, there are differing viewpoints – in New York, clients and commentators are a bit more optimistic. They think we’ll come out of the other side a bit earlier than we think.’
Dominic Griffiths, London managing partner, Mayer Brown
Strength from weakness
‘The pound is weak now, so the UK is attractive to overseas investors. People are seeing the downturn in the UK as a buying opportunity. If the pound continues to struggle, I expect the public M&A market to continue and even increase.’
Pranav Trivedi, Partner, Skadden