Along with volatility in global markets and decreasing credit availability, the volume of initial public offerings and other deals in Canada has slowed leaving Ontario’s securities lawyers with a lighter than usual workload in certain areas.
However, several lawyers in the industry are confident a return to market fundamentals will eventually happen.
Over the last month, markets have been increasingly volatile, with the TSX dropping 16 per cent in the first full week of October. Last Monday, the Dow Jones Industrial Average rallied more than 936 points, its biggest one-day gain since the 1930s, while on Tuesday, the TSX surged more than 890 points, or 9.8 per cent.
“Whether that’s just another data point in a volatile time, we’ll know eventually,” says Shawn McReynolds, a partner at Davies Ward Phillips & Vineberg LLP in Toronto. The TSX fell Wednesday and Thursday.
McReynolds says he is fairly positive, long-term. “I’ve been here since 1982. I’ve seen disruptive events, maybe not quite on the scale of what we’ve seen for the last three months, but I don’t doubt that the market will revert to fundamental values and volatility will abate at some point.”
He says it’s “an event unlike any other since I’ve arrived here, but I don’t doubt that sooner or later,” confidence will return. “Good companies that are well capitalized and well managed will prosper, at the expense of companies that are undercapitalized or badly managed.”
In his own practice, McReynolds says there has been a decline in capital markets transactions recently as a result of volatility. He started to notice the slide in this area of work in the summer of 2007, when the asset-backed commercial paper issues first appeared in Canada.
He adds that, “In terms of mergers and acquisitions work, there’s been a significant decline in the number of transactions that depended upon bank financing,” noting that the firm’s M&A work is now largely for clients who had cash reserves and those who find that the market volatility presents opportunities. McReynolds says that his firm is also starting to see a rise in debtor/creditor work.
Gary Solway, a partner at Bennett Jones, also notes that for securities lawyers, things have slowed down “quite a lot,” as the volume of deals has decreased, resulting from uncertainty regarding prices and financing.
“With no money and an uncertain price, it makes it hard to put a deal together,” he says.
Solway says that a couple of years ago, lawyers saw many “happy deals,” with the buyer happy to buy at the price, and the seller happy to sell. This year has involved more “unhappy deals” where someone is being forced to sell at any reason, and buyers are happy to buy, but are unsure if they are getting a good price.
“All the securities lawyers are basically deal junkies, we need transactions. There’s a certain amount of securities work that’s required just to keep public companies public, but it’s not going to keep securities lawyers busy,” he says.
“I think the transactions will come again, I think there’ll be a lot more unhappy deals in the next little while, because people are running out of money, running out of financing, the market’s bad,” he says.
Desmond Lee, a partner at Osler Hoskin & Harcourt and called to the bar in 1998, says for lawyers around his age, this is essentially the first time they are seeing a situation like this. Many securities lawyers who worked through the tech crash in 2000 didn’t feel it as much, since although tech IPOs slowed down, income trust IPOs picked up, he says.
“I think it means a lot when you hear people who have been practising for 20 and 30 years saying, ‘Jeez we’ve never seen anything like this either.’”
“I don’t think the end of the world is here, we’ve been through a number of these things before and things sooner or later turn around,” says Solway.
Lee says he thinks that lawyers in Canada are in the same position as lawyers elsewhere. “In the U.S., I’ve got to think they’re probably working more actively on actual insolvencies and restructurings, whereas I think in Canada I don’t think people are seeing the big insolvency transactions that people were thinking might actually happen.”
McReynolds adds that, “There have been some high-profile significant transactions in the United States where there have been specific investments in specific financial institutions, Warren Buffet investing in Goldman Sachs for example.”
Overall, says Lee, things are really not that bad for securities lawyers in Canada.
“If you’re a Canadian securities lawyer, I think you’re generally used to working on a variety of things, even when times are good, just because we tend to be less specialized than you might be if you were a securities lawyer in the U.S. or elsewhere,” he says.
Lee says he and his colleagues are seeing a lot of investments in financially distressed businesses, and has been receiving calls from the companies themselves and people looking to make those investments.
In terms of corporate finance, he says there is no question that IPOs have been hit hard this year.
“It’s been a really bad year for that. On the other hand, we’ve definitely been getting questions on how else to get listed in Canada, given that it’s hard to raise money right now.”
PricewaterhouseCoopers reported this month in its Survey of IPOs in Canada that not a single issue reached the TSX in the third quarter. In the first nine months of the year, 53 new issues launched on all of Canada’s exchanges, compared with 63 in the same period of 2007 and 95 in 2006.
“If you’re a deal junkie - and not all lawyers are - and all you like to do are large transactions, obviously it’s not been the greatest year for you,” says Lee. Although Lee adds that with a stable, diversified business, “There’s still legal work to be done, and certainly clients need a lot of advice in these times,” he adds.
Some securities lawyers note that one positive element to the current situation could be the additional time to see family and friends.
As a result of a lesser workload, there has probably never been a better year for lawyers in terms of finding work-life balance, says Lee. He adds that times like this also bring people at a firm together, as they are thinking about their own business.
Solway also notes that he has noticed an increase in work-life balance over the last few months.
“You just have to be around long enough to have been through a few cycles to get comfortable with the fact that these are cycles and the world hasn’t come to an end and try and enjoy the time that you have when things aren’t so busy,” he adds.