One thing to start: US corporate lawyers are on track to receive record bonuses this year as a wave of dealmaking and fierce pay battles has driven up compensation across the industry.

US law firms including Cravath, Swaine & Moore, Boies Schiller Flexner and Fried Frank are offering historic bonuses following a boom in M&A activity © Dan Kitwood/Getty Image

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Spac to reality

We reported recently on how true believers in blank-cheque companies were hoping that the Spac phenomenon would shift from a state of scandal-prone frenzy into a new, more mature phase, echoing the evolution of junk bonds.

But then days come along, which remind us that the stock market remains very much in its wild west phase.

On Monday, we learnt that US regulators are investigating Digital World Acquisition Corp, the special purpose acquisition company set to merge with Donald Trump’s social media start-up, Trump Media and Technology Group.

Last month the Securities and Exchange Commission requested documents relating to its board meetings and information on trading policies, investors’ contact details and communications, Digital World said in a filing.

It also received inquiries regarding its trading activity ahead of the merger’s announcement from the broker-dealer watchdog Finra, or the Financial Industry Regulatory Authority.

A person checking the app store on a smartphone for Truth Social, with a photo of former US President Donald Trump on a computer screen in the background
Truth Social, which has no existing app, intends to list through a merger with a special purpose acquisition vehicle in New York © AFP via Getty Images

The regulatory investigations dented investor enthusiasm. Digital World’s shares fell 2.6 per cent on the day, giving up sharp pre-market gains following news over the weekend that TMTG had raised $1bn in private investment in public equity, or Pipe, financing from unidentified investors.

Digital World added that it was co-operating with both inquiries and that neither information request suggested that any wrongdoing had occurred.

The FT’s reporting appears to point to some incredibly well-timed trading.

Trading volumes in warrants issued by Digital World surged almost 800 per cent on October 20, just before a deal with Trump was announced, data from Bloomberg shows. On October 21 those warrants went from trading at 51 cents to close at $11.29, a 2,119 per cent increase.

It’s just the latest headache for Digital World since Democratic senator Elizabeth Warren called on the SEC last month to investigate possible securities violations surrounding the merger.

Warren cited a New York Times report that Digital World chief executive Patrick Orlando had been discussing a deal with Trump as early as March — more than six months before the deal was announced.

Despite the regulatory probes, and the fact that Trump’s Truth Social platform has no app or business plan, the media venture has released some lofty valuations.

Figuring out a plan for the company may now fall to Republican congressman Devin Nunes, who announced late on Monday that he was leaving the House of Representatives to serve as TMTG’s new chief executive.

Republican congressman Devin Nunes, a former chair of the House intelligence committee, has been named the new chief executive of Donald Trump’s media venture © AFP/Getty Images

Trump’s vision for a “non-cancellable community” isn’t the only high-profile Spac deal under the SEC’s microscope.

Lucid Motors is being investigated over disclosures and forecasts it made when it merged with a Spac run by former Citigroup investment banker Michael Klein, one of the sector’s most prolific sponsors.

Mounting regulatory investigations into US Spacs have failed to dissuade investors across the Atlantic. London is celebrating its first Spac since recent rule changes.

And a deal to merge the London drug discovery group BenevolentAI with a Amsterdam-listed Spac launched by the dealmaking veteran Zaoui brothers is poised to become Europe’s biggest-ever blank-cheque listing.

Times are changing for Big Law

If there’s one thing law firms have in common today, it’s a waning enthusiasm for a once-venerated system of pay known as “lockstep”. 

Yesterday the elite New York firm Cravath, Swaine & Moore sunk another nail into the coffin of a pay model once viewed as synonymous with the collegiate culture of private law, the FT’s Kate Beioley reports.

After 50 years, Cravath is ending its “pure lockstep” model in which partners of the same vintage are paid the same regardless of performance.

Pure lockstep pay is designed to knit partners together and get rid of infighting over work and credit. But the model is creaking under pressure from deep-pocketed rivals (hello, Kirkland & Ellis) who are swiping the market’s best lawyers for far higher sums than lockstep would allow.

Cravath partners took home on average $4.6m last year
Cravath partners took home on average $4.6m last year © Pascal Perich/FT

Now the number of pure lockstep firms has dwindled to a handful — including Slaughter and May in the UK and Debevoise & Plimpton in the US.

Cravath is generally seen as the “birthplace of the modern law firm”, according to headhunter Mark Jungers, due to its “Cravath system” of training and pay that contributed to high retention rates.

But that’s no longer the case. Back in 2016 deals star Scott Barshay left for Paul, Weiss on a pay deal worth more than $10m a year, and more recently the corporate partner Damien Zoubek headed out for a role at Freshfields.

When faced with freewheeling compensation systems that allow for eye-popping pay, pure lockstep systems struggle to fight back. Cravath’s move signals the end of an era.

DD expects Slaughter and May to follow in its footsteps.

From listicles to a public listing: BuzzFeed’s Spac-fuelled slump

“Should you buy BuzzFeed stock?” asked a tongue-in-cheek quiz compiled by the media group ahead of its Spac merger.

For many investors, the answer is simply: no.

Shareholders in the Spac taking BuzzFeed public withdrew 94 per cent of their money ahead of the company’s stock market debut, underlining how far Spacs have fallen from favour since the hype at the start of the year.

Jonah Peretti, BuzzFeed chief executive, stands in front of the Nasdaq in New York’s Times Square as the company went public on December 6
Jonah Peretti, BuzzFeed chief executive, stands in front of the Nasdaq in New York’s Times Square as the company went public on December 6 © Reuters

After raising $288m from investors, blank-cheque company 890 Fifth Avenue Partners announced its merger with BuzzFeed in June. But after a rush of investor redemptions, BuzzFeed received only $16m from the Spac.

Instead of listing 17 per cent of the company on Nasdaq as previously planned, a little more than 1 per cent of BuzzFeed’s equity will trade on public markets, likely heightening its volatility and potentially making the meme-maker susceptible to becoming the next meme stock.

Instead, the bulk of the capital BuzzFeed raised came from a $150m convertible bond, not traditional Pipe financing, a move dubbed “the kiss of death” by Michael Ohlrogge, a corporate finance professor at New York University, who lamented the company’s inability to raise institutional Pipe capital.

Jonah Peretti, the founder of BuzzFeed, is unfazed. “It doesn’t change our strategy,” he told the FT’s Anna Nicolaou.

He’s hoping that demand for BuzzFeed’s content and cash from the public markets will enable it to roll up smaller groups and create a media powerhouse.

BuzzFeed made its name with listicles and online stunts but in recent years has invested in journalism
BuzzFeed made its name with listicles and online stunts but in recent years has invested in journalism © Bloomberg

“I’m not an expert on Spacs, I just see Spacs as a means to an end for us,” Peretti said.

While the Spac market has cooled significantly since the start of the year, investors are also concerned about BuzzFeed’s future. It capitalised on the digital media boom of the 2010s but has since struggled with slashed valuations and years of discontented journalists.

As BuzzFeed’s share price closed down 11 per cent on Monday, its few remaining investors may have ideas for a new quiz: “Why Did I Buy BuzzFeed Stock?”

Job moves

  • Stacey Cunningham, who became the first woman to lead the New York Stock Exchange in 2018, will step aside as president. Jeff Sprecher, co-founder and chief executive of the bourse’s owner Intercontinental Exchange, will relinquish his role as chair of the NYSE, among other sweeping changes.

  • Freshfields has appointed Katherine D’Urso as global chief business development and marketing officer, based in New York. She joins from WilmerHale, where she was chief client development officer.

  • Ted Baker is looking for a new chair following the sudden death of John Barton, the City veteran and former chair of easyJet and Next. Helena Feltham will assume the role of interim chair effective immediately.

Smart reads 

Clean-up costs extra SoftBank’s top fixer Marcelo Claure has placed a $2bn price tag on what he thinks he deserves for mopping up the WeWork mess among other fiascos. But his boss Masayoshi Son is tightening the purse strings. (New York Times)

Disrupting dealmaking With his brazen fee structures and eye for misunderstood start-ups, Steve McLaughlin has ridden the fintech wave to become the highest-paid investment banker in America. (Wall Street Journal)

A Spanish succession tale Marta Ortega, scion to the Spanish retail group Inditex, is preparing to take over as chair, a position her father occupied a decade ago. Critics say that it will be hard for her to uphold the family legacy. (FT)

News round-up 

Cathie Wood’s Ark Invest slumps to bear market as tech bets sour (FT)

Evergrande shares tumble as new debt payment deadline looms (FT)

SenseTime seeks up to $17bn valuation in Hong Kong IPO (FT)

Discovery in talks with BT Sport to hijack sale to DAZN (FT)

SoftBank shares fall as value of portfolio companies plummets (FT)

Private equity giant CVC eyes blockbuster float (The Sunday Times)

AG Barr/MOMA: The quiet M&A machine moves on to solids (Lex)

Investor activism in Europe to enter ‘golden age’ (FT)

South-east Asian telecoms merge into mega-groups to invest in 5G (FT)

London developers target old offices at risk of becoming stranded assets discount (FT)

Due Diligence is written by Arash Massoudi, Kaye Wiggins and Robert Smith in London, Javier Espinoza in Brussels, James Fontanella-Khan, Ortenca Aliaj, Sujeet Indap, Eric Platt, Mark Vandevelde, Francesca Friday and Antoine Gara in New York and Miles Kruppa in San Francisco. Please send feedback to due.diligence@ft.com

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