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Michael Kennedy leaves next week for Hawaii, where the Wilson Sonsini Goodrich & Rosati partner is taking his family for a 10-day vacation. That’s what Silicon Valley mergers and acquisitions lawyers are doing now. They take time off, because they’re sure not doing deals. In the first six months of this year, Silicon Valley’s seven most active corporate firms laid claim to a mere fraction of the work in prior years, even the years before the Internet boom. The seven firms had a hand in just 104 deals in the first six months of this year, compared to 638 deals in all of last year (see related chart). Even in pre-boom 1998, there were 583 deals. It’s not likely to get better anytime soon either. Kennedy predicts technology M&A work will be slow for at least another year, thanks in part to the battered telecommunications industry. “That’s just a huge component of technology and technology services,” Kennedy said. “In terms of a real healthy M&A market returning, you’re not going to see that until the telecom mess is rationalized.” In the meantime, smaller tech companies are still finding ways to merge with competitors, sometimes trying to shore up a flagging business model with new capital or technology, Kennedy said. Despite the downturn in technology, Wilson Sonsini managed to land on the top of the M&A list for the first six months of this year. The firm easily bested its technology-focused competitors: Wilson had a hand in 38 announced deals, followed by Brobeck, Phleger & Harrison and Gray Cary Ware & Freidenrich, which both logged 18 deals. Cooley Godward counted 15 deals and Fenwick & West had 10. Venture Law Group had three deals and Gunderson Dettmer Stough Villeneuve Franklin & Hachigian came in with two. Wilson also beat out, though barely, all other firms in the state with significant M&A practices. It edged out Los Angeles heavyweights Latham & Watkins, which scored 37 deals, and Gibson, Dunn & Crutcher, which had 35. John Newell, head of M&A in Latham’s San Francisco office, said his firm benefited from representing a large cadre of non-technology companies. Those companies, he said, are doing more strategic deals rather than buying companies for the sake of growth, as many technology companies did during the boom. “They’re putting together pieces that really make sense in one business,” Newell said. Still, with corporate earnings and accounting processes under greater scrutiny than in the past, companies are taking more time to kick the tires, Newell said. Because of increased due diligence, what used to take six weeks now takes three months, he said. “Buyers have brought in independent accounting firms to seriously scrub the numbers,” Newell said. Further lengthening the process are institutional investors, who are paying more attention to the details when it comes to deals involving larger, publicly traded companies, Newell said. “The big things people are looking at now are corporate governance issues and how they may impact transactions,” Newell said. That kind of micro-management by shareholders hasn’t yet trickled down to the smaller tech deals, said Henry Lesser, a Gray Cary partner and co-chairman of the firm’s M&A group. Instead, the greatest hurdle is the fear factor, Lesser said. “People are scared, scared of making the wrong move,” Lesser said. And since the pressure is off to do deals as a way of showing growth, executives are quicker to walk away from deals. As a result, Lesser said he has a handful of deals that are in hibernation, waiting for an executive to feel better about continuing. One such deal started last year, died, revived briefly and then died again. “They think about it, let it churn in their stomachs for a while,” Lesser said, “and decide whether their gut feels good about it after they’ve thought about it.” Related chart: Year-to-Date M & A Performance

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