The Final Act: Contemplating the Legal Landscape in 2023


The legal landscape of 2023 witnessed numerous impactful events. These include mergers among prominent law firms, as well as developments in areas such as the retailisation of funds, and the move from conventional public credit to private credit. Furthermore, there has been a noticeable expansion of law firms, actual and contemplated, into jurisdictions such as Singapore, India, and Saudi Arabia. The increased influence of sovereign wealth funds has been a prominent feature relating to the latter and indicates the growing importance of this legal landscape.

Law Firm Mergers

Q1 saw the London Private Equity team of Dickson Minto join Milbank. Meanwhile, Q4 saw the approval of the Allen & Overy and Shearman and Sterling merger, heralding one of the legal industry’s most significant combinations in years. Upon completion, this union between London-based Allen & Overy and the New York-based Shearman & Sterling would establish a formidable firm boasting nearly 4,000 lawyers, comprising around 800 partners, and operating across 48 offices worldwide.

Retailisation of Funds

The “retailisation of funds” refers to the adaptation of investment funds, originally designed for institutional investors, to be more accessible to individual retail investors. This process involves modifying fund structures, strategies, and marketing approaches to meet retail investors’ preferences. In the European Long-Term Investment Fund (ELTIF) Regulation context, retailisation aims to facilitate retail investors’ participation in long-term investments like infrastructure projects and less liquid assets. This is achieved by reducing barriers, simplifying assessments, and providing more flexible fund terms for retail investors. The goal is to broaden investor participation in long-term investments for economic growth and sustainability. The push to access retail capital is a priority for major industry funds, aiming to increase individual investor assets under management (AUM). Companies like Blackstone, KKR, and Apollo have set ambitious targets to raise significant amounts from retail investors over the coming years.

Private Credit

On the private credit side, since the global financial crisis, the private credit market has witnessed significant growth, offering an alternative funding source beyond traditional banks and public debt. Projected to continue expanding due to rising borrower demand, private credit represents a substantial portion of the $12 trillion alternatives market. Direct lending, the primary category within private credit, involves negotiated loans to small and mid-sized firms in their growth stages, catering to those not yet ready for public markets. Globally valued at approximately $1.6 trillion (excluding real estate), private credit assets under management rival U.S. high yield bond and leveraged loan indices.

Driven by borrower preferences for pricing certainty, customised funding, and smaller deals, private credit meets the financing needs of smaller firms, which find public markets impractical due to larger average deal sizes. With about $698 billion in North America alone, private credit presents an opportunity for borrowers seeking diversified financing as bank lending becomes less appealing. These funds typically involve low leverage, long-term capital commitments from investors, and losses borne solely by them.

International Expansion and Sovereign Wealth Funds

The legal landscapes of Saudi Arabia, Singapore, and India are witnessing a surge of international law firms leveraging recent reforms (Saudi Arabia and India) and the influence of sovereign wealth funds. This surge involves prominent names in the legal sector establishing a direct presence in Saudi Arabia and exploring opportunities in India following rule changes allowing foreign access. Regulatory changes in Saudi Arabia eliminated the need for local alliances, enabling firms like Latham & Watkins and Clifford Chance to offer legal services directly to clients, contributing to the Kingdom’s legal market growth. In India, DLA Piper and others are considering establishment following the Bar Council’s recent decision, though limitations exist on advising on local law or appearing in Indian courts. Sovereign wealth funds, especially Saudi Arabia’s Public Investment Fund (PIF), have driven economic growth and investment, enticing law firms to expand operations, yet ethical considerations, especially regarding human rights, prompt firms like Hogan Lovells and Linklaters to implement stringent client selection and due diligence to align with liberal values and responsible business practices. Meanwhile, amongst others, Quinn Emanuel and Greenberg Traurig have strategically expanded their footprint in Singapore through the establishment of new offices in the city state.

Market Predictions for 2024

Commentators note that following a significant surge of 22% in the need for legal services in 2021 post the Covid lockdown, demand has steadily increased. There was a 3% rise in 2022 and a subsequent 6% uptick in 2023. Projections for 2024 indicate a 2% growth in legal service demand compared to 2023.

Development of Legal Tech

The ongoing expansion of legal technology in 2023 witnessed a surge in inquiries about whether AI would replace lawyers, spurred by the ChatGPT boom. While the likelihood of such a scenario is low, this trend undeniably hastened discussions about embracing technology across the legal sector. Earlier this year, Allen & Overy introduced ‘Harvey,’ an AI-driven chatbot designed to aid its lawyers in contract drafting. This initiative received widespread acclaim, garnering praise from national and legal trade publications. Firms now confront increasing client pressure to integrate technology for enhanced efficiencies. Leaders in law firms must navigate this demand while weighing the significant reputational risks associated with any missteps and addressing concerns about the potential impact of tech adoption on job security for their staff. According to Gartner, there’s an anticipation that legal departments will triple their expenditure on legal technology by 2025.

M&A and Private Equity

In 2023, the M&A landscape experienced fluctuations, stabilising by September, signalling potential balance due to strategic adjustments and economic influences. Legal experts foresee increased confidence in private equity (PE) deals in 2024. Despite fewer large buyouts, PE firms exhibit growing confidence, with increased activity in Q4 2023. High-quality assets face aggressive strategies, while others undergo extended due diligence. PE firms are expanding internationally, and the outlook for 2024 seems positive, with substantial assets lined up for sale and record pipelines reported by investment banks. Commentators highlight $3.7tn in unused capital poised to revive the global M&A market.

Funds, Secondaries

The M&A landscape has shown more diversity in deal types, with a balanced mix of GP-led and portfolio sales. Preferred deals and structured secondaries, especially in Europe, have seen continual growth. GP-led deals are shifting towards multi-asset and multi-fund arrangements from single-asset deals. Expectations among fund sponsors and investors indicate an anticipated increase in M&A volumes in the coming years, notably in 2024, with higher confidence in Europe and North America than in Asia due to subdued Chinese markets.

Investor scepticism persists regarding GP valuations, although M&A markets’ limited exit opportunities have boosted GP-led volumes. Even if M&A markets recover, GP-led deals are anticipated to remain an attractive liquidity tool. In the LP portfolio realm, despite efforts to balance public and private positions, large multi-billion sales persist. Sellers are diversifying portfolios to optimise pricing among numerous buyers, occasionally deferring purchase prices and increasingly employing financing for larger portfolio acquisitions.

Fundraising remains robust for historic secondary buyers, with a surge in larger flagship funds and growing interest in specialised strategies like single-asset recaps and credit secondaries.