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The term for it could be postpartum depression. It’s that empty, lost feeling mergers and acquisitions lawyers are getting after a deal closes or goes bust. There’s a lot of it going around in Silicon Valley these days, especially among tech lawyers. They don’t know anymore where their next deal is coming from. It’s a drastic shift from this time last year, when M&A lawyers were buried in work. Deals were moving along at a healthy clip, and 15 California firms with active M&A practices went on to close 35 percent more deals than they did in 1999. “Last year, you were worried that the next deal that came in was going to kill you because you had no capacity,” said Richard Capelouto, a Simpson Thacher & Bartlett partner in Palo Alto, Calif. “This year, the worry is if you lose a deal, where are you going to get the next one,” Capelouto said. With the stock market and the economy limping along, gone are the deal backlogs, the lavish deal-closing parties, and the endless supply of acquisition capital companies used to do deals. The M&A deal pace this year is so slow compared to recent years that firms will be lucky to score a fraction of the business they did in prior years. The 15 California firms with the most active M&A practices closed 1,400 deals in 2000, up from 1,034 in 1999. Based on the deal activity so far this year, the firms are in line to close about 700 deals by the end of the year. For a closer look, consider the deal pace at Wilson Sonsini Goodrich & Rosati. The 800-lawyer Palo Alto, Calif., firm closed just 39 deals in the first six months of this year. But in 2000, Wilson led tech firms in M&A work, closing 253 deals. That was a significant bump from 1999, when the firm closed 199 deals. Now in the lead is San Francisco’s Brobeck, Phleger & Harrison, which has closed 43 deals so far this year. That still puts the firm significantly behind its pace last year, when the firm closed 208 deals, but not far off of the 101 deals the firm closed in 1999. It’s a darker scenario for Cooley Godward, which is also based in Palo Alto. The firm closed 31 deals so far this year, compared to 108 last year and 91 deals in 1999. Los Angeles firms, however, appear to be spared much of the suffering. Gibson, Dunn & Crutcher has sealed 96 so far this year. That compares to 169 deals last year and 200 in 1999. And Latham & Watkins closed 45 deals in the first six months of this year. Last year, Latham scored 117 and in 1999, 98. For the tech firms, it’s not just slow. The deals that are moving through the pipe are more difficult than the ones done in prior years. When the stock market was soaring, companies used stock to go on buying binges. And under pressure to grow quickly, there was almost no such thing as a pointless M&A deal. That’s not the case anymore. For one thing, bad news keeps pouring in for many companies, and executives are having a harder time mapping their performance. That makes it hard to fix a price tag to a company. “When you thought you knew what the economy was doing, you could value in the ballpark what a company was worth to you,” Capelouto said. “Now, you have no confidence in what the company’s performance is going to look like.” Partly as a result, executives are hard-pressed to justify acquisitions, making the groundwork before a deal more intense, said Dennis DeBroeck, a Fenwick & West partner. “People are taking a more deliberate process than I saw before” the market tanked, DeBroeck said. “There’s a lot of hurry up and wait. You have a bunch of plans circling and you don’t know when they’re going to land.” Plus, the leaner times make for more contentious negotiations, DeBroeck added. “Where there’s less on the table to grab for, every dollar means more,” he said. That desperation bleeds into the completed deal as well. Peter Kerman, Latham & Watkins partner, said he’s increasingly challenged with fusing together two companies that come with enormous financial baggage. In some cases, companies coming into a merger are worth less than the money the investors have pumped into it to keep it alive, Kerman said. When that happens, investors usually have claims on a disproportionate amount of stock, which leaves little left over for employees. “You have to figure out what’s the capital structure, and how do you create a common stock equity [package],” Kerman said. “There aren’t nearly as many happy people and they’re harder to do than typical deals,” Kerman added. But still, Kerman said the M&A mantra of late: “We’re lucky to have deals at all.” Related Chart: Year-to-Date M&A Performance

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