Wachtell’s Slide Down M&A Ranks Tests Storied Law Firm’s Model

The strategy that has made Wachtell the country’s most profitable law firm challenges its ability to reclaim a top spot among M&A dealmakers.

Wachtell, Lipton, Rosen & Katz is seventh in Big Law rankings for mergers and acquisitions work through three quarters this year. That’s down from the second spot, which Wachtell has held on Bloomberg Law’s league tables in each of the last three years.

The 60-year-old Manhattan firm cemented itself as an elite corporate adviser by keeping it’s focus narrow. It has stuck closely to its model as rivals scaled up, chasing new lines of business and overhauling pay systems to court rainmakers.

“What may be threatening to them is not having relationships with new money,” said law firm adviser Peter Zeughauser. “That’s what they need to crack—maybe that’s through laterals or through a more proactive relationship in the financial community.”

Kirkland & Ellis, the private equity deals behemoth that’s pushed Big Law’s race to scale, is on track to rank No. 1 in M&A transactions. That would be the third time Kirkland has topped the list in the last four years since overtaking Wachtell. Wall Street’s Simpson Thacher & Bartlett was the lead M&A adviser in 2022, before Kirkland regained the first spot last year.

Wachtell declined to respond to requests for comment.

The firm, which was the country’s most profitable last year at $8.5 million per equity partner, is unlikely to make a major pivot. Its new leaders, William Savitt and Andrew Nussbaum, touted the firm’s “position of great strength” when they took over nearly a year ago and said their goal is to “sustain its success.”

Still, the drop in the rankings “may call into question their historical preeminence, unless they change some of what they’re doing,” Zeughauser said.

Leading deals firms have rushed toward the Texas deals market to snag a share of the lucrative work in energy, which has outperformed several other industries. Paul Weiss Rifkind Wharton & Garrison, for instance, conducted talks to open a Houston office after Latham & Watkins became the first to open an outpost there in 2010 and Kirkland followed in 2014.

Wachtell has remained conservative with its geographic footprint, even as it has won some mega energy transactions from afar.

Firms that choose not to widen their footprints can put themselves at a disadvantage in regard to competitors that do expand geographically, though “all strategies can be effective,” said Scott Love, president of recruiting firm The Attorney Search Group.

Wachtell’s rivals have also sought an edge through hiring. UK-headquartered Freshfields placed fifth in the Bloomberg Law rankings through the third quarter, surpassing Wachtell for the first time. It expanded stateside over the last half-decade by poaching top lawyers from competing firms.

Freshfields first set the strategy into motion by bringing on Ethan Klingsberg and three members of his team from Cleary Gottlieb Steen & Hamilton in 2019. The firm has since added others, recently including Latham’s Neal Reenan and Ian Bushner in New York.

Paul Weiss, which also surpassed Wachtell on deals work this year, has similarly been on a hiring tear. The firm brought on more than 20 M&A and private equity partners last year from UK and US rivals, including Kirkland and Latham.

“The more people you have on your team closing deals, the higher your rankings will be—it just organically goes that way,” said Krystal Champlin-Gerage, a law firm consultant and business adviser at RJH Consulting.

Wachtell has added a total of 12 lawyers to its partnership since 2002, according to data from The American Lawyer. The firm also operates with an unusually lean 2-to-1 associate-to-partner ratio.

Its relatively small roster for a firm that works on massive deals has helped make Wachtell the country’s most profitable firm in nine of the last 10 years.

Deals Surge

M&A transactions surged in the third quarter of the year, hitting their highest quarterly level since 2022, in part due to a rise in take-private transactions and wide availability of private credit to finance deals. Deal volumes may slow down in the fourth quarter as companies pause to account for the uncertainty of the November election, lawyers say.

Kirkland advised on $297.1 billion in transactions through the first three quarters, ahead of $274.1 billion by Skadden, Arps, Slate, Meagher & Flom and $250.9 billion by Latham. Wachtell advised on $169 billion in the same period.

Kirkland built its position at the top by routinely handling the most deals by volume among all law firm rivals. Wachtell followed its pattern of focusing on a small number of matters that carry a large price tag. While Kirkland steered more than 500 transactions in the first three quarters of the year, Wachtell advised on about 40.

Kirkland guided Kellanova in Mars Inc.'s plan to purchase the company for $36 billion. It was the largest deal of the year at the time it was announced. It also guided ConocoPhillips’ plan to acquire Marathon Oil for $17 billion, alongside Wachtell.

Wachtell’s largest transactions of the year so far include guiding Capital One Financial Corp.'s acquisition of Discover Financial Services for $35 billion and two energy deals: Diamondback Energy Inc.'s purchase of Endeavor Energy Resources LP for $26 billion and the ConocoPhillips Marathon Oil buy.

Several Big Law firms, including Kirkland, have benefited from a surge in private credit and moved to grow teams and form new client relationships in the growing area. Those deals continue to tick up, but the size of individual transactions appears to have leveled and direct lenders are sitting on a surplus of cash.

Wachtell has primarily focused on advising sell-side parties in major acquisitions, as well as defending companies in activist and high stakes litigation.

Paul Weiss and other firms have installed tiers of non-equity partners to free up cash needed to make expensive lateral hires and boost their competitiveness. Wachtell has stuck to longstanding pay models, maintaining a purely “lockstep” seniority-based structure.

Without installing new pay structures, catching the likes of Kirkland in total deals work based on value—whose annual revenue has nearly doubled to more than $7.2 billion in the last five years—could prove challenging. Even the top firms might need to make changes to stay on top, Love said.

“You’re starting to see second tier firms capture work that was once reserved for only elite firms,” he said. “Seeing what some firms have done in terms of adding a non-equity partnership—they’re starting to realize that they have to be competitive now in terms of talent.”