City Report

Welcome to The Lawyer’s first-ever monthly legal intelligence feature, covering the most significant developments in the M&A/private equity market over the past four weeks. Lawyers and bankers alike were celebrating in October following a dramatic upturn in corporate activity with several big ticket M&A deals hitting the headlines on the last day of the month, including Telefonica’s £18.29bn recommended takeover of mobile telecommunications business O2 and the £410m management buyout of discount retailer Peacock. Meanwhile, rumours regarding possible bid approaches for glassmaker Pilkington, ports operator P&O, construction group Mowlem and Aston Villa football club were also rife.

Simmons & Simmons was the surprise beneficiary of Telefonica’s takeover of BT spin-off O2. The £18.29bn bid is one of the largestever corporate deals in the telecoms sector and is also the biggestever all-cash bid for a UK target. Simmons first made contact with Telefonica after advising the Spanish telecoms business on the purchase of a €240m (£162.2m) stake in China Netcom earlier this year.

Simmons’ gain, however, was Clifford Chance‘s loss. The magic circle firm, which is advising the lending banks alongside Ashurst on the Telefonica/O2 tie-up, had to settle as the number two adviser to the Spanish bidder on the multibillion-pound takeover.

As first reported in Lawyer News Weekly, Freshfields Bruckhaus Deringer has also benefited hugely from the unprecedented level of M&A activity. Within months of Freshfields completing a dramatic facelift of its corporate practice, the magic circle firm claims it has been inundated with instructions. The firm is sitting on the opposite side of the negotiating table to Simmons on the Telefonica/O2 marriage. Meanwhile, corporate partners Ed Braham and Farah Ispahani advisedGoldman Sachs on the Peacock management buyout – the first UK leveraged buyout by hedge funds. However, Allen & Overy deserves a mention here as the magic circle firm – led by corporate partner Andrew Ballheimer, who is most famous for advising US sports tycoon Malcolm Glazer on his successful takeover of Manchester United football club – advised the hedge funds Och-Ziff Capital Management and Perry Capital Management on the landmark Peacock deal.

According to Thomson Financial, 3,201 deals (involving any UK element) totalling $383bn (£220.23bn) were announced between 1 January 2005 and 31 October 2005 (see table). In contrast, 4,074 deals (involving any UK element) totalling $379bn (£217.93bn) were announced during the whole of 2004. Surprisingly, according to Thomson Financial, fewer deals (249 valued at $84bn (£48.3bn)) were announced last month than in October 2004, when 333 deals valued at $112bn (£64.4bn) were announced.

Corporate partners interviewed by The Lawyer are relatively confident that the volume of deal activity is sustainable, saying that the order book is looking healthy. The partners also point to some of the key differences between the state of the M&A market today and what the market experienced during the height of the dotcom boom. For instance, most of the deals announced in recent times involve traditional companies with trading histories. In contrast, in 2000 most deals centred around fledgling loss-making businesses. Another noticeable difference is that a number of the deals announced last month involve foreign bidders and UK targets. So although the recent wave of deals is generating much-needed mandates for M&A lawyers in the short-term the long-term, may be less rosy for firms that are not geared up to advise overseas clients.

View table: Top 20 announced M&A deals for October with any UK involvement