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If there are any lingering questions over why the Bay Area’s largest law firms saw revenues drop last year, look no farther than their idled corporate lawyers. According to Thomson Financial, a securities research firm, firms with significant M&A practices had a hand in 375 M&A dealslast year, a 53 percent plunge from the previous year’s 801 deals. And firms couldn’t look to initial public offerings — once the calling card of any serious Silicon Valley firm — to help bolster the bottom line: IPOs were off another 32 percentin 2002. But the hit to the M&A market was perhaps the more painful one in 2002 since IPO activity has been down for several years. M&A was the one corporate practice that appeared to be weathering the downturn even as securities work plummeted. Lawyers are blaming lackluster economic growth, threats of war, a deflated stock market and the crisis in corporate governance for the slump. “It was just a very tough year for the businesses,” said Gavin Grover, a partner at Morrison & Foerster. “A lot of people are just so busy with other priorities.” MoFo’s M&A practice lost ground this year, but it managed to limit the damage to a 19 percent drop from 37 deals in 2001 to 30 last year. Grover said the firm’s saving grace was international clients buying and selling U.S. companies or subsidiaries. The firm finished the year by closing on New Year’s Eve client Hitachi Ltd.’s $2.05 billion purchase of IBM Corp.’s interest in a co-owned disk drive operation. MoFo’s drop looks positively insignificant when compared to the big drops among other players. Latham & Watkins’ deal activity slid by 52 percent; Gibson, Dunn & Crutcher dropped 62 percent; and Wilson Sonsini Goodrich & Rosati saw its deal volume dip 34 percent. Still, Wilson had a hand in 112 deals last year, enough to claim the top spot among California firms in number of mergers and acquisitions handled. The other active Bay Area firms were Brobeck, Phleger & Harrison (89 deals), Gary Cary Ware & Freidenrich (43 deals), Cooley Godward (33 deals), Shartsis, Friese & Ginsburg (19 deals), Heller Ehrman White & McAuliffe (17 deals), Pillsbury Winthrop (17 deals), Fenwick & West (6 deals) and Orrick, Herrington & Sutcliffe (5 deals). Venture Law Group and Gunderson Dettmer Stough Villeneuve Franklin & Hachigian both had two deals. On the IPO front, Wilson also managed to stake out a leading position. The firm took six clients public and represented underwriters in four more deals, according to Thomson Financial. Brobeck managed to help stage two IPOs, one for issuers and one for underwriters. Cooley managed to take one client public and represented the underwriters in two more deals. But none of the other Valley-based IPO players managed to score an offering. Whether the public markets develop a hunger for new stocks is anyone’s guess — and swapping predictions has become a somber pastime for securities lawyers in the Valley. But M&A lawyers are more upbeat about this year’s prospects. For one thing, the pipeline is filled with deals, and while executives have been skittish about closing, at least they keep talking, said Douglas Cogen, a Fenwick partner. “There’s a lot in the pipeline, which is good news for lawyers, but when do they kick in is the question,” Cogen said. For some, it’s a valuation problem, he said. Even after two years of a falling stock market, some executives still can’t accept the low bids buyers are willing to put up, Cogen said. And corporate scandals have given buyers pause, Cogen said, adding that he regularly fields inquiries from clients about the integrity of a target’s books. “Many deals are falling apart during the valuation stage or the due diligence stage,” Cogen said. Henry Lesser, a Gray Cary partner, wrote off last year as a dip in the up-and-down cycle of M&A activity. “I just don’t accept the premise that the M&A market is dismal, and so we all have to fall on our swords,” Lesser said. “The fact of the matter is that acquiring companies is an embedded practice and it will come back.” He likened last year’s M&A market to a computer in sleep mode. “There’s still juice running through them,” he said. “It never really dies.” Related charts: M&A Performance IPO Performance

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