Cooley Tested by Roller Coaster Market as Proffitt Takes Reins

Rachel Proffitt, who takes over as Cooley’s chief executive officer in January, has a choice to make: staff up for a possible return of the deals business or restrain lawyer headcount because the market will probably stay sluggish.

There have been fewer than 15,000 mergers and acquisitions in each of the past four quarters after companies topped that level for two years, Bloomberg data show. Initial public offerings, after numbering 933 in 2021, have fallen to 75 so far this year.

“Financial markets are not calming down,” said Eric Talley, a corporate law professor at Columbia Law School, who cited interest rate volatility and Federal Trade Commission pressure. “Every one of these IPOs is like the canary that flies into the cave, and we’ll see if it comes back or ends up belly up on the cave floor.”

Cooley, which has prominent clients such as Apple Inc., Meta Platforms Inc. and Nvidia Corp., is exposed to market swings because it concentrates so much of its business on startups and emerging companies in the technology space.

When business boomed the firm recruited aggressively, bringing in more 300 associates in 2020 and 2021, according to data from Leopard Solutions. Then last November, the downturn forced Cooley to lay off 150 attorneys and staff in US offices. In April, the firm delayed the start date for its incoming class of new associates until next year.

Other firms were also caught in the up-down cycle. Goodwin Procter, Gunderson Dettmer, Kirkland & Ellis, and Orrick Herrington & Sutcliffe are among those that resorted to layoffs.

Balancing headcount is a fundamental question managements face in guiding law firms through the up-and-down cycles, said Ralph Baxter, former leader of San Francisco-founded Orrick, whose tenure included the dot-com bust and Great Recession.

Adjusting headcount takes longer than in other workforces because of the quality and training required for lawyers at top operations, he said. Firm leaders also need to guard against partners’ over-reaction to the market, especially as their pay continues to rise, he said.

“You can solve for profits per partner at the expense of something else,” said Baxter, who now advises law firms. “But that’s not always the right answer.”

Cooley Deals

Proffitt, head of the San Francisco corporate practice, will become Cooley’s first female CEO. She said in an interview last month that the firm is well-positioned for whatever the market brings.

“Just as our clients are dynamic, we’re going to need to be the same and continue to evolve as their needs do,” she said.

Cooley has advised on 13 initial public offerings this year worth nearly $2.8 billion, including one of the biggest, Instacart, which began trading Sept. 19 as Maplebear Inc. Proffitt helped lead the Cooley team advising Maplebear. The IPO will bring in nearly $4.2 million in legal fees and expenses, according to a securities filing. Cooley also handled the $621 million IPO of biopharma company Acelyrin Inc. in May.

In mergers and acquisitions, the firm ranked first in deal count through the first three quarters of this year, according to Bloomberg data. It ranked 13th among law firms in deals by principal, up from 41st in 2022.

Cooley advised cybersecurity firm Splunk Inc. in its sale to Cisco Systems Inc. for $28 billion on Sept. 21, Cisco’s largest. It successfully defended long-time client Horizon Therapeutics in September against an antitrust challenge brought by the FTC of the company’s $27.8 billion sale to Amgen Inc.

`Testing’ Waters

The question for Cooley and rivals is how quickly companies will increase transaction activity. Treasury yields make cash deals less attractive, as companies opt instead for stock-for-stock transactions, Talley said. Venture capital investors are getting nervous as they may have a return of capital obligations, he said.

“We’ll probably see some more testing of the waters to see what’s possible,” Talley said.

It will only take “any little spark in the market” to change the deal flow, Cooley’s current CEO, Joe Conroy, said in an interview last month. “I’m optimistic that we’re about to face another period of great growth in demand,” he said.

Suzanne Kane, a San Francisco-based partner at legal recruiter Empire Search Partners, said of transaction activity: “When it starts to boil, it’s going to boil over. And if you’re not ready for it, you’re not getting the work.”

Traditional Silicon Valley firms have been doing some strategic hiring, but they’re being cautious, she said. “They’re taking care of their current lawyers first, keeping the current associates busy,” Kane said.

Cooley brought on a trio of IP litigators from Fish & Richardson in June. Earlier this week, Cooley added Alexis Bortniker, co-chair of Foley & Lardner’s healthcare transactions group in San Diego.

“When you talk with the heads of capital markets practices here, they’ll all tell you client preparations for that window has to start six months in advance of the actual opening,” said Nick Goseland, San Francisco-based legal recuiter at Macrae. “Just about every firm we speak to wants laterals—capital markets laterals in particular—to be transitioned now.”

Tough Competition

Cooley and other Silicon Valley law firms have an added challenge: battling out-of-town rivals with deep pockets trying to edge their way into the Northern California market.

Debevoise & Plimpton, which opened its San Francisco office in 2021, added a pair of litigation partners in July. New York’s Sullivan & Cromwell said last month it doubled the size of its physical space in Palo Alto, California. Willkie Farr & Gallagher’s San Francisco operation has grown to 45 lawyers since it opened in 2019.

“There’s just too many high-end clients to compete for here,” Goseland said. “It’s really hard to have a successful global practice that doesn’t have a foothold here.”

But long-entrenched Silicon Valley firms such as Cooley have an advantage of experience in competing against the newer rivals, Baxter said.

“There’s a special understanding of the way things work in the world of technology that you don’t learn overnight,” he said. “Clients know it’s valuable to them and it gives those firms an advantage.”

— With reporting by Mahira Dayal and Roy Strom.