(Michael Morgenstern)

Dealmaking was just so-so last year in much of the world, even as it was a time for megadeals in the United States. The volume of global mergers and acquisitions was down 6 percent, to $2.4 trillion, the slowest year for M&A since 2009, according to Thomson Reuters. But M&A work in the United States saw a sizable uptick, and deals with U.S. targets were a particular bright spot, posting a gain of 11.3 percent, to $1.04 trillion.

In fact, 10 of the 15 largest announced transactions worldwide featured U.S. targets. One clear outlier made a material impact on the year’s totals: Verizon Communications Inc.’s $130 billion deal to acquire the 45 percent stake in its Verizon Wireless unit held by British mobile phone giant Vodafone Group Plc. Only America Online Inc.’s disastrous $181.6 billion acquisition of Time Warner Inc. in 2000 and Vodafone’s own $203 billion acquisition of German telecommunications company Mannesmann AG in 1999 have been larger, Thomson Reuters says. (Thomson Reuters counted the Verizon Wireless deal as a U.S.–U.S. transaction because both Verizon Communications and Verizon Wireless are U.S. companies, even though the seller of the stake is British. Wachtell, Lipton, Rosen & Katz advised Verizon on the deal, while Simpson Thacher & Bartlett and Slaughter and May counseled Vodafone.)

Take away the Verizon Wireless deal, and the rest was underwhelming. Just over 36,000 deals were announced during 2013, Thomson Reuters notes, down 7 percent from 2012 and the fewest M&A deals since 2005. “Ultimately you did not have the really strong M&A year in the U.S. that I think a lot of people in the beginning of 2013 thought,” says Francis Aquila, cohead of Sullivan & Cromwell’s general practice group. “What was really lacking was business confidence.”

Add to the lack of confidence a gap between what buyers were willing to pay and the premiums that sellers expected, says Ropes & Gray corporate partner Julie Jones. “The multiples on targets were high,” she says. Seller expectations likely were inflated by soaring stock prices in public companies: The Dow Jones industrial average was up 26.5 percent on the year, and the S&P 500 was up nearly 30 percent, its best performance in more than a decade and a half.

But buyers were left to question whether the rising stock prices were indicative of growing strength in the economy or a new bubble. Prior to the financial crisis of 2008–09, “people were unhesitating in thinking that the rise of the market was going to continue unabated,” says Simpson Thacher M&A partner Alan Klein. “In 2013 there wasn’t the same sort of confidence in the potential for continued appreciation of market values.” Indeed, buyers also had to ask if the markets had fully accounted for the wide-reaching effects of the Federal Reserve’s bond buying program—also known as “quantitative easing”—which the Fed slowly and publicly began tapering down at the end of the year.

The gap between the U.S. and the rest of the world wasn’t confined to M&A. The quantitative easing program helped fuel the debt market in U.S., while elsewhere things were less active. Globally, debt activity fell off by 2 percent in 2013 to $5.6 billion, the lowest total since 2011, according to Thomson Reuters. Yet in the U.S., investment-grade corporate debt offerings hit $1 trillion, narrowly topping 2012 and setting an all-time record. “It really was more of the same,” says capital markets lawyer Kirk Davenport II, cochair of Latham & Watkins’ national office. “Free money from the government continued to lubricate the system.” Companies in the U.S. accounted for 64 percent of all debt issues in 2013, up from 60 percent in 2012.

As was the case in the M&A world, the Verizon Wireless deal—and the $49 billion in debt Verizon issued to help fund the acquisition—had an undeniable impact on market totals. The underwriting banks even provided an additional $12 billion in loan financing for the purchase on top of the record amount of bonds issued to fund the deal. The total of $61 billion in bank financing for the Verizon deal was the highest debt issuance ever.

In what was largely a down year for deals across the emerging markets, one record-breaking debt transaction stood out. In the largest bond offering ever by an emerging-market company, Brazilian state oil company Petroleo Brasileiro S.A. issued $11 billion in SEC–registered notes to fund its offshore oil developments.

In the market for high-yield debt, or junk bonds, the rest of the globe outpaced the U.S. Junk bond deals were up by 19 percent to $462 billion globally, the strongest period since Thomson Reuters started tracking its data in 1980. Even Europe, anemic on many fronts, saw a year-over-year doubling in issuance.

It was also a strong year for equity offerings, where globally activity increased 27 percent, to $796.8 billion, making 2013 the strongest year since 2010, according to Thomson Reuters. Initial public offerings were up 40 percent globally, to $164.9 billion, also the strongest year since 2010. In the U.S., Facebook Inc.’s $3.9 billion follow-on offering in December was the year’s largest; it occurred six months after the social media giant’s stock rallied in late July past the $38 share price offered during its troubled 2012 IPO. Facebook rival Twitter Inc. posted the fourth-largest IPO of the year in the U.S. with its $2.1 billion offering, even as underwriters had the oh-so-Silicon Valley challenge of crafting nonfinancial metrics to chart a path to profitability.

Although it was a slow year for M&A, drama came from other sources. While engaging with activist investors such as Carl Icahn and Bill Ackman is often burdensome and annoying for boards and CEOs, it can provide the kind of complicated intellectual and psychological puzzles that are attractive to corporate lawyers—not to mention the billable hours involved in playing defense.

But “playing defense” might not be the right phrase anymore. “It used to be the case that top firms generally would advise corporations just to say no to the activists,” says Debevoise & Plimpton corporate department chair Jeffrey Rosen. Large-asset management firms such as The Vanguard Group Inc. and BlackRock Inc.—in many cases the largest shareholders in public companies—increasingly are asking boards to consider activists’ demands and to respond in a way that is, in Rosen’s words, “more substantive, more thought-out.”

In the year’s highest-profile activist play, David Einhorn’s Greenlight Capital Inc., with counsel from Akin Gump Strauss Hauer & Feld, sued Apple Inc., demanding that the company distribute some of its $137 billion in cash to investors. Einhorn ultimately dropped the suit after the company issued a then-record $17 billion in corporate bonds in April as part of a plan to return $100 billion to shareholders by 2015. (The bond issue that topped Apple’s record? Verizon’s—see above.) Even after the Apple bond deal, Icahn, dean of shareholder activists, continued to amass a position in the company and push its board to aggressively expand its stock buyback plan before he backed off his request in February.

Particularly active in representing the activists last year were Schulte Roth & Zabel’s Marc Weingarten and David Rosewater. The pair’s work on behalf of TPG–Axon Capital Management LP, First Manhattan Co. and Clinton Group Inc. led to CEO shake-ups at SandRidge Energy Inc., drug company VIVUS Inc., and Stillwater Mining Company, respectively. An activist was also the first to test the waters of Delaware’s new tender offer rules, which allow a buyer who amasses a simple majority of shares to close a deal without a full shareholder vote. Akin Gump helped John Paulson’s Paulson & Co. purchase Steinway Musical Instruments Inc. for $512 million two weeks after the new Delaware law went into effect. Paulson, who personally owns three of the iconic Steinway & Sons pianos, ultimately beat out private equity firm Kohlberg & Company and Steinway’s largest shareholder, Samick Musical Instruments of South Korea.

Playing its traditional role of fending off the activists, Wachtell, Lipton, Rosen & Katz helped Dell Inc. founder Michael Dell complete a go-private deal in the face of an opposition group led by Icahn and Southeastern Management Group Inc. Dell and technology-focused private equity fund Silver Lake Partners completed the $24.9 billion go-private deal in October. (Silver Lake was represented by Simpson Thacher, and Dell’s special committee was represented by Debevoise.) According to Thomson Reuters, buy-side private equity was up 22 percent globally in 2013, to $374.3 billion, bolstered by the Dell deal and another deal involving a U.S. target, the $27.3 billion acquisition of HJ Heinz Company by Brazilian private equity firm 3G Capital and Warren Buffett’s Berkshire Hathaway Inc. (On that deal, Heinz was represented by Davis Polk & Wardwell, while 3G Capital was represented by Kirkland & Ellis, and Berkshire Hathaway by Munger Tolles & Olson.)

So what does 2014 hold? With the financial meltdown another year in the past, will the market pendulum swing further away from the fear of risk-taking and toward more seizing of opportunities?

Simpson’s Klein says there are reasons why M&A activity could be up in 2014: Companies have cash on hand and are getting pressure from shareholders to do something with it, and M&A is often the best way to grow in a slow-growth environment. But he says that expecting a material jump in mergers might be wishful thinking. “Those are all predicates that have been in place for years now without a huge bump in M&A activity,” he says.

Sullivan & Cromwell’s Aquila is more optimistic. “Many companies are in situations where their competitors have either grown organically or done deals in the past couple of years, and they feel compelled to do deals now to catch up,” he said in an interview in January. “I think there are a lot of reasons for transactions to happen this year, and so far we’ve been pretty active. But two or three weeks does not a big year make.”

Ropes & Gray’s Jones says that before the stock market blips of late January, she would have expected that “this is going to be a ‘shoot the lights out’ kind of year.” Still, she says she’s hopeful that the drop in stock prices have helped bring buyers and sellers closer together on valuations and pricing. Latham’s Davenport adds that he expects the debt markets to remain healthy and active since the Fed has only slowed, not stopped, its bond buying. “The money is still basically free,” he says. “Absent some lightning strike, things will slowly continue to get better.”

But another Ropes & Gray partner, R. Newcomb Stillwell, perhaps sums it best. “The bottom line is that we are slowly recovering,” he says. “I think last year was better than the year before, and this year will be better still.”

At least, a little bit.