While Bay Street's elite merger-and-acquisitions lawyers almost always claim to be busy, there is no disputing that 2013 was the slowest year for corporate deals in Canada since 2009.
The deal drought has been blamed as a contributing factor in the surprise collapse of law firm Heenan Blaikie LLP – a demise some see as a warning sign for other firms, particularly mid-sized ones feeling pinched by the slowdown.
Behind the lull is a lack of deals in the natural resources sector, which is normally the main source of billable hours for the lawyers who work on these transactions on Bay Street.
Many lawyers insist there are potential deals bubbling under the surface – deals that get stalled or fall apart before they become public, as volatile metal and minerals prices keep buyers cautious. But it remains unclear when, or if, the heady pace of mergers-and-acquisitions seen on Bay Street before the financial crisis will return.
"It's moderately busy, there's a few things going on," said Kevin Morris of Torys LLP. "We get reports regularly. M&A files are marked confidential; so, if you see a confidential file that's busy you know something is going on. You see a few of those. It's busy, but sporadic."
Since the latter half of 2013, says McCarthy Tétrault LLP's David Woollcombe, activity has picked up outside of the mining sector, with deals between mid-sized oil-and-gas companies as well as in financial services and the retail sectors. And he says there should be more to come in those areas.
Mr. Woollcombe, the former head of McCarthy's business law practice, says one positive sign is the increased interest from private equity firms in Canadian deals, including mining assets.
Mining companies that run into trouble raising money are going to have to consider selling their assets sooner or later, he said: "I think there are mining companies that are going to find themselves up against the wall from a financing perspective and may well find that they have to do something before too long."
In large firms with diverse teams of lawyers, different practice groups pick up the slack left by the absence of big M&A deals. At McCarthy Tétrault, for example, a large litigation practice fills in the revenue gap when deals are slower.
John Wilkin, a partner with Blake Cassels & Graydon LLP, said the firm's large insolvency and restructuring team is getting busier as companies run into cash crunches.
He points out that the market is now starting to see some big hostile takeover bids surface in the resource sector and that proxy fights are becoming more common, giving lawyers work to do.
Plus, he said, the deal drought has to end at some point.
"People are shopping," Mr. Wilkin said. "But ... there's a disconnect between the buy side and the sell side in the market. The buy side is looking for bargains, the sell side is not so desperate yet that they are willing to take a fire-sale price."
Still, the lack of deals and the Heenan demise seems to have amplified the discussion about the changes coming to the way law firms work. They are all facing pressure to lower fees, as well as outsource work and make use of new technology.
Clay Horner, chairman of Osler Hoskin & Harcourt LLP, says his firm is sometimes perceived as a corporate and mergers-and-acquisitions shop, but it has always aimed to have "as balanced a business as possible."
"Today, you have to be really strong in litigation, because class-action suits are the new M&A transactions," Mr. Horner said. "They go on forever and ever; you can put a lot of people on them."
Law firms can also succeed by moving into other areas, such as helping companies wrestle with information security issues, and infrastructure deals. (Osler, for instance, just expanded its offering to clients by hiring a group of privacy lawyers from the Toronto office of collapsed Heenan Blaikie.)
Mr. Horner said change is coming belatedly to Canada's major law firms, which until now have been spared the dramatic contraction hitting U.S. firms.
"There's a real change in Big Law," he said. "Because of the security of our financial system and our natural resources being so strong, Canada has been immune to some of the pressures in the U.S. But that's changing."
With files from Boyd Erman