When The Lawyer published the financial results of the top 50 US law firms on 24 March, it confirmed what most people already suspected: transactionally, 2007 had been over the top.
“I’d characterise the private equity market last year as absurd,” says one US M&A partner who had been closely involved in several major deals. “I believe that a substantial number of participants recognised the market was overheated by early 2007 at the latest. One would have thought the rational reaction would have been to pull back, but the market suffered from a collective action problem.”
There was no pulling back until the market’s crash in late summer obliged with an enforced breather. By then, in the US and worldwide, M&A and private equity-led buyout volumes had reached record levels.
Although the results for UK-headquartered firms will not be known in full until later this year, it is clear that, for the world’s leading law firms, 2007 was a transactional bonanza.
The chosen few
The deals tables underline the dominance of a handful of powerhouse firms and point to the relationships they have built up over years or decades. They also reveal some surprises.
More than 70 firms made it into the top 20 on at least one of the six tables (according to Mergermarket). Canadian firms, notably Blake Cassels & Graydon, which advised telecoms company Bell Canada Enterprises on its $48bn (£24.2bn) buyout, Osler Hoskin & Harcourt and McCarthy Tetrault, feature prominently, their home market powered by record levels of M&A involving Canadian businesses.
Other firms outside the usual suspects, such as Sidley Austin, secured leading roles on one of more of the world’s top 10 deals (according to another set of tables, this time from Bloomberg).
But wherever you look, there can be no disguising the real winners. Simpson Thacher & Bartlett confirmed its position as the world’s leading buyout firm, handling three of the five largest private equity deals ever in TXU, First Data and Equity Office.
Sullivan & Cromwell and Skadden Arps Slate Meagher & Flom, number one and two respectively for global and US M&A (by value), also both had an astounding 2007. Simpson Thacher partner Alan Klein’s comment on one of his firm’s major deals last year (“There were a lot of familiar faces”) could also be applied to the year in general.
Across the Atlantic, the US firms’ counterparts were Freshfields Bruckhaus Deringer and Clifford Chance. The magic circle firms snared the one and two spots for European M&A (by value) respectively. Indeed, Freshfields has topped the European M&A tables for the past three years. And this is where there is a degree of divergence.
Neither of the UK firms managed a significant showing on the US domestic M&A value table (Freshfields was sixteenth and Clifford Chance seventeenth), although the same two firms (in the same order) took third and fourth spots for global M&A by value last year. In contrast, Sullivan and Skadden scooped the fifth and sixth spots for European M&A value to go with their first and second places in the global and US tables.
On paper at least, the leading US giants appear to be leading the field for bragging rights among the transatlantic M&A powerhouses.
Credit where it’s due
Of course, deals tables can be misleading. Firms routinely get credit on deals for financial advisory assistance, beefing up their rankings. Plus sheer scale will eventually get you numbers. This partly explains the success of many firms in the volume tables, among them Latham & Watkins, Jones Day and Dewey & LeBoeuf. It certainly underlines how DLA Piper managed to secure the number three spot on the global M&A volume table, besting Linklaters and Freshfields. Also, to put it rather simply, the transactional nexus is rather complicated. The question of where the deal gets done raises several questions for any international law firm.
Take the year’s biggest deal for Davis Polk & Wardwell, the £50.2bn acquisition of Dutch bank ABN Amro. The ABN deal was originally brought in by the Paris office. Davis Polk was lead counsel with Nauta Dutilh and needed more resources, so it drew on London with lawyers including partner Tom Reid.
Then there was the $20bn (£10.14bn) ‘sideshow’ LaSalle deal, which featured New York; and prior to that some bank regulatory work in New York as well as the Department of Justice investigation. So this was a $101bn (£51.2bn) cross-border deal, but where and how do you credit it?
Luckily for Davis Polk, as a lockstep firm it worries considerably less about apportioning credit. As the firm’s managing partner John Ettinger puts it: “If you’re not lockstep, you have to spend time working your way through the apportioning issues.”
Still, the deal serves to highlight not only the problems of accurately ranking firms in an increasingly global market, but also how the issue of staffing deals internationally is equally thorny.
The 10 largest M&A deals last year also underline another fundamental aspect of the international M&A business: that it is driven by relationships.
Among Klein’s “familiar faces” was Cravath Swaine & Moore partner Richard Hall, who last year popped up on several major deals, including ABN, TXU and Endesa. All came as a result of longstanding ties Hall and Cravath have patiently built over years.
“It’s been a very strong three to four-year period for Cravath and me personally on complex cross-border deals,” admits Hall. “A meaningful percentage of Cravath’s M&A volume is international.” In Cravath’s best friend-driven case in particular, those good relationships have to count. For Simpson’s Klein, the Rinker deal also proved the power of the Simpson brand. The story goes that one day last year Rinker chairman John Morschel woke up to discover Cemex had put in a bid. “We were hired the same day,” recalls Klein. “Why? Their bankers, UBS, know us.”
Another deal that illustrated the importance of cultivating relationships on either side of the Atlantic was one that dominated a large part of 2007 – the juggernaut takeover of ABN by Royal Bank of Scotland (RBS). Linklaters advised acquirer RBS on both sides of the Atlantic, while an 80-lawyer team from Shearman & Sterling advised on a wide range of US aspects. Allen & Overy advised the Dutch bank along with Nauta Dutilh and Davis Polk, the US firm capitalising on an association with ABN that stretched back more than a decade.
Back in the 1990s, one of Davis Polk’s then young associates was approached by ABN in New York to act for it on the underwriter side on a deal. The associate was Meg Tahyar, now a partner in the firm’s Paris office and key to the relationship with ABN until last year’s acquisition. “I’d identified them back then as a very interesting outfit, although still very small in the US,” recalls Tahyar.
At the time, ABN was not Securities and Exchange Commission-registered and had no particular loyalties to any of the elite US firms. Tahyar spent the years between 1996 and 1999 developing the client, talking to it primarily on the underwriting side.
“Eventually in 2000 they asked us if we’d take over the issuer side work,” says Tahyar. By this time ABN had listed and grown significantly its presence in the US, while Tahyar had become her firm’s key relationship partner to the bank.
In what was a barnstorming year transactionally for Davis Polk, another longstanding relationship – this time with UK-headquartered AstraZeneca – also bore fruit. New York partner Paul Kingsley picked up the mandate to advise the pharmaceuticals giant on its $15.6bn (£7.91bn) acquisition of biotech company MedImmune, the largest-ever acquisition of a US pharmaceutical company by a non-US acquirer.
“It was a feather in our cap that we’d been working with AstraZeneca for so long [in that it helped us] get the M&A mandate,” says Paul Kingsley, a corporate partner at Davis Polk. “It’s also evidence of our positioning as an international firm with the capability to do large international transactions.”
Like Cravath or Slaughter and May, the debate over Davis Polk’s international strategy will continue. There can be no argument, however, with the firm’s outstanding 2007.