In-House Counsel

3 Legal Predictions For 2019

What will happen in the legal industry in the new year? In-house columnist Mark Herrmann has some ideas.

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It’s the end of the year.

So it’s time to make predictions about the coming year.

Looking back at my past predictions, I have to admit:  I was wrong about the Cordray thing.  He’s not the governor of Ohio, and he’s pretty unlikely to be veep.

But, shoot, that won’t stop me from making more predictions.  Or from occasionally being right.

So, in keeping with my own personal tradition, I offer three predictions for the coming year.

First, the big one:  The two halves of mergers and acquisitions work — public company and private equity M&A — will have different fates in 2019.  Public company mergers and acquisitions work will suffer as the economy stumbles; private equity M&A will continue to thrive for a while beyond that.

Here’s my thinking:  Corporate profits are now sky-high.  That’s fueled in part by the easy-money policies of governments for the past decade and in part by tax cuts in the United States.  All that is coming to an end, and projected corporate profits look like they’re falling off the edge of a cliff.  This rapid growth, and the accompanying public company M&A work, is unsustainable for the global economy, unsustainable for the national economy, and unsustainable for public companies that are doing deals.

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Even without the weird stuff — tariffs, Brexit, political crises — 2019 promised to be a hard year.   I don’t think we can stave off the coming downturn and accompanying drought in public company M&A.

On the other hand, private equity M&A won’t suffer as quickly.  Private equity firms are awash in cash.  For the past several years, investors worried about stock valuations and earned no money on debt, so they gave money to private equity firms.  For the last five to 10 years, those private equity firms have been doing deals, which must now return cash.  There are only three liquidity events in private equity:  an IPO, a recapitalization, or a private sale.

When you want to dispose of a company in a private sale, to whom do you sell?  Other private equity firms!  Those other private equity firms are, after all, awash in cash, and they must find a way to deploy that cash.

Private equity firms need dispositions, and other private equity firms need acquisitions.  So long as the debt markets cooperate, that’s a recipe for a banner year!  I’m predicting that public company M&A will fall off in 2019, but private equity M&A will continue to boom for a while.

Prediction number two:  2019 will be the year of the woman in the law.  I predicted last year that we’d see more allegations of sex harassment in law firms.  I think that’s come to pass.  Partners at law firms have now been fired after having been accused of impropriety.  Law students have convinced major firms to change their policies about arbitrating employment disputes.

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That was a beginning.  In 2019, we’ll see a middle:  Clients will increasingly insist that women participate on trial teams, get origination credit for work, and otherwise progress in law firms.  Firms will be embarrassed by pay equity studies that reveal how women are undercompensated.  The pressures from within and without will make the legal profession bend, and women will see real progress in 2019.

Finally, a prediction about litigation finance.  That’s a field that has mushroomed in recent years, and it’s going to continue to thrive in 2019.  The laws of economics will eventually take hold:  As litigation finance becomes more crowded, the excess profits that have characterized the field will shrink.  Even as profits normalize, however, I suspect that litigation finance will thrive — because people are looking for investments that are not correlated to the traditional markets.

We’ve seen money pour into the “catastrophe bond” market — where you basically make money if no hurricane hits Florida during a certain time — because the activity of hurricanes is not correlated to other markets.  We’ll likewise see money pour into litigation finance — because the likelihood that P will defeat D in litigation is not correlated to other markets.  Alternative investments, such as litigation finance, are attractive beyond their mere return on investment, because their returns aren’t correlated to other markets.  Expect investors to continue to deploy money there.

Those are my predictions for the new year.  And here’s my hope:  That you have a happy and healthy one!

Mark Herrmann spent 17 years as a partner at a leading international law firm and is now deputy general counsel at a large international company. He is the author of The Curmudgeon’s Guide to Practicing Law and Inside Straight: Advice About Lawyering, In-House And Out, That Only The Internet Could Provide (affiliate links). You can reach him by email at inhouse@abovethelaw.com.

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