3 September 2007
Most M&A pundits could not believe their luck in 2005-06. But surely the frothy market could not hold? It did – and although there are more doomsayers than ever predicting the end of the corporate boom, 2006-07 was the strongest year on record for most corporate firms.
Taken in aggregate, the top 20 corporate practices in the UK generated a whopping £2.85bn last year, up by 14.5 per cent on the previous year. If a firm was not boasting record results, there was something wrong with its business model.
Naturally with cross-border M&A being particularly healthy, firms that could offer a seamless service across jurisdictions were the primary ones to prosper. This meant storming results for all of the magic circle, with Allen &
Overy (A&O) and Clifford Chance belying their reputations as banking, rather than corporate, powerhouses.
However, no one could touch Linklaters. The inexorable domination of the magic circle firm took hold as it topped the corporate rankings by revenue for the third year running. Group revenue rose by 23 per cent, bettering the firm’s already considerable 20 per cent jump in fees.
Head of corporate David Barnes’s team was in demand from its plc clients this year, defending J Sainsbury from a private equity consortium bid (with the supermarket facing another at press time). It also picked up some new panel clients such as Linde.
The corporate team also proved its mettle on cross-border deals, with the £16bn Rusal tripartite merger being the obvious example: Linklaters advised two of the three parties.
Moreover, Linklaters plugged the hole in private equity left by partners Graham White and Raymond McKeeve, who defected to Kirkland & Ellis last spring. Under the supervision of Charlie Jacobs, Richard Youle was made up to partner and the team pulled off a coup in bringing his old Eversheds teammate Ian Bagshaw to Linklaters from Clifford Chance, where he was a rising star under Adam Signy.
Not that Clifford Chance should be too distressed. Ahead of schedule the corporate team contributed just shy of 30 per cent to worldwide turnover, the 2009 target set by global head of corporate Peter Charlton. Corporate’s contribution has been increasing steadily in the past few years and 2006-07 was an outstanding 12 months for the group.
On last year the group has seen a 25 per cent rise in turnover, while revenue per partner (RPP) sneaked up by nearly 5 per cent. It should be pointed out that corporate headcount jumped by nearly 30 partners.
It helps that the team landed one of the biggest deals in recent times when longstanding client Barclays turned to Clifford Chance as co-lead counsel on its merger discussions with Anglo-Dutch banking giant ABN Amro. At press time the outcome of those discussions was still unclear.
But Barclays was really the cherry on the cake of a busy year for the corporate team. The private equity team in particular made a strong showing, not least advising Kohlberg Kravis Roberts on its £11.1bn buyout of Alliance Boots.
Other corporate highlights included advising longstanding client Siemens on its £15.9bn joint venture with Nokia, which was important because it involved the coordination of 100 overseas jurisdictions.
A&O was also proud of the performances of its non-London offices. In the US particularly the firm has made a real push and it was a coup for A&O to land on General Electric’s M&A panel for the US. The Netherlands, too, proved extremely successful, with the team advising Nuon on its £16bn takeover by Essen, and of course landing the lead role advising ABN in its merger talks with Barclays.
But the 200-lawyer UK team saw some headline deals too, co-advising Nasdaq on its two approaches for the London Stock Exchange (LSE) and advising Macquarie Bank on its £8bn consortium bid for Thames Water, with both deals falling under the watch of veteran corporate partner Alan Paul. Global head of corporate Richard Cranfield says: “The firm’s always had a strong corporate practice. Against a background of a highly competitive market we’ve had to make sure we performed well enough to ensure we’re the top tier. Do I think we’ve done so? Yes.”
It should be noted that all of the magic circle accounts for corporate revenue and headcount in different ways. In fact, across the board corporate is the one area where it is hard to make an accurate comparison of firms. Many practice areas, such as IP, tax, employment and pensions, are included in some firms’ corporate breakdowns. And some go further: Macfarlanes, for instance includes debt finance. At the magic circle level, A&O, Clifford Chance and Linklaters include competition, while Freshfields Bruckhaus Deringer does not.
If competition is included in Freshfields’ corporate breakdown, turnover bumps up to £424m, putting Freshfields ahead of A&O and Clifford Chance in the rankings and within £35m of Linklaters.
Arguably, Freshfields has the strongest competition team in the magic circle, with a current contribution of 10 per cent of firmwide turnover. And it is not just a corporate support team: it has scored some stellar deals in contentious matters, such as securing costs for Visa as an intervener in the MasterCard appeal against the Office of Fair Trading.
Assuming competition’s assistance, Freshfields posted a 40 per cent increase on last year. On pure corporate figures alone, the team broke the £2m RPP figure last year for the first time.
Even Freshfields’ management admits that it was the corporate team’s performance that got the firm through a difficult year; despite a £55m restructuring, Freshfields was still able to post a 12 per cent increase in turnover. Freshfields’ corporate team, under group head Tim Jones, managed to turn its hand to all aspects of the increasingly messy M&A landscape. If there was a consortium-driven, cross-border, hostile auction for a regulated target, as happened with the Grupo Ferrovial-led consortium’s £12bn acquisition of BAA, then Freshfields was called in. Managing the differing interests of other consortium bids also seemed no problem, with the team advising private equity consortium Osprey, among others, on its winning bid for water company AWG.
But Freshfields was just as comfortable on the galumphing deals – big but conventional – that trod all over the M&A landscape. It successfully defended the LSE (twice), advised Wilson Bowden on its £2.1bn takeover by Barratt and led Japan Tobacco to victory on its £7.5bn acquisition of Gallaher Group.
On the latter two deals, Freshfields squared up to Slaughter and May.
Unsurprisingly, Slaughters left all rivals for dust in the corporate rankings. Its ‘small but beautiful’ mantra might not make it a front-runner in total revenue terms, but its RPP is astounding. It was the only firm to break the £3m barrier in terms of the revenue each corporate partner pulled in. Indeed, last year it closed in on £4m.
Slaughters might not have the private equity practice of other teams, or the reputation for advising the more unusual corporate players, but for traditional boardroom M&A, of which there was plenty in the past 12 months, it is hard to top Slaughters. Its advice to Boots was a good example: it took Boots through an £8.1bn merger with Alliance-Unichem that completed in the summer of 2006, then successfully advised the merged company on its buyout just eight months later.
Slaughters corporate head Chris Saul also pointed to the evolution in private equity deals structuring, saying: “A year or so ago it was all about consortium bids. Since then movement has been towards single-house deals with equity bridging (like Alliance Boots), but what will the credit crunch do to that? It’s a fast-moving world.”
Agreeing with him thoroughly would be Ashurst head of corporate Adrian Clark, who has cast the top 10 firm as the jack-of-alltrades of the City. That strategy paid off, with Ashurst seeing a 25 per cent rise in corporate turnover, which sees the firm jump one place in an otherwise stable ranking from last year. Ashurst does not include competition, employment or pensions in that category.
It was, of course, on the other side of Linklaters in the £16bn Rusal deal, but beyond that it cannot simply rely on a FTSE100 client base.
“We have to be more proactive,” admits Clark. “There’s plenty of room in this market to achieve that: the market likes a firm that understands leveraged finance, private equity, pure M&A and banking structures, and can meld all that together in a deal.”
Ashurst’s international network also matured to the extent that one particular high-profile deal, Dubai International Capital’s (DIC) £579m acquisition of German packaging company Mauser, the firm’s first DIC mandate, bypassed London and was completed out of the firm’s Dubai and Frankfurt offices.
Also blessed with a great deal from an overseas client last year was The Lawyer’s Corporate Team of the Year Award winner Herbert Smith. The jewel in its corporate crown was successfully advising Indian conglomerate Tata on its £6.6bn acquisition of Slaughters client Corus, which was secured through a rare auction called by the Takeover Panel. But there were other highlights too, such as longstanding client First Choice’s £10bn merger with TUI and advising BAA on its £12bn takeover by Ferrovial. The firm saw its corporate turnover jump by a very healthy 15.5 per cent, consolidating its position among the silver circle firms.
DLA Piper’s Europe, Middle East and Africa arm managed strong and steady growth in corporate, nudging up a place in the rankings. The firm’s AIM work went stellar, and in the first quarter of 2007 it was the only firm to score a place in Hemscott’s three key top 10 rankings: by number of AIM clients, by the market capitalisation of these clients and by their profitability.
Further down the table, Simmons & Simmons slipped three places on last year. Although revenue rose by more than 4 per cent, this was not outstanding when compared with peers such as Ashurst and Norton Rose, which both overtook Simmons in the corporate rankings last year. But the firm, in a year in which the global corporate team took a particularly heavy hit in Hong Kong through a mass defection to Fried Frank Harris Shriver & Jacobson and mitigated by Simmons global corporate head Damon LeMaitre-George’s relocation to Hong Kong, did manage to push RPP up by a very respectable 28 per cent.
Norton Rose saw corporate revenue jump by 25.7 per cent on last year, pushing it up by one place in the table. Global head of corporate finance Tim Marsden says both corporate headcount and contribution to firmwide turnover had risen this year, from 71 to 87 partners, and from 36 per cent to 41 per cent respectively.
“We’ve had a good number of strong internal promotions in the past few years and this has helped get our international offices up to critical mass,” says Marsden. “You can’t run an effective office with one man and his dog.”
Also seeing an increase in partner headcount was Hammonds. But rather than building up corporate turnover, group fees at the firm actually dropped by 16 per cent, in line with the beleagured firm’s general performance: revenue dropped by 4 per cent and it endured a flood of partner losses following the end of the firm’s equity partner lock-in at the end of July 2006. These included Manchester corporate head Stephen Levy’s defection to Pinsent Masons. That said, the corporate group did manage to pick up some headline deals, such as winning entrepreneur John Shannon as a new client. The end of the financial year also saw the beginning of a string of football deals that saw Hammonds dominate the area.
Also doing well out of football deals was Denton Wilde Sapte, which despite a generally lacklustre firmwide performance managed to climb a place in the corporate rankings. Group turnover jumped by 16 per cent, while RPP rose by 12 per cent. Its busiest jurisdictions were its blue-chip Middle East offices with heavyweight active clients such as Investcorp.
Keeping steady at the bottom of the table were Macfarlanes and Travers Smith. Both firms’ derive the lion’s share of their revenues from their corporate departments, and naturally both firms were well placed for a good year. It should be noted that Macfarlanes has a particularly wide definition of corporate; if one looks purely at corporate
and M&A, its partners number around 20.
Still, the team had a standout year, the pinnacle perhaps being advising Companhia Siderúrgica Nacional (CSN) on the Corus bid, rivalling that of Herbert Smith client Tata. In the end CSN lost out, but it was Macfarlanes that came up with the innovative competing scheme of arrangement. Through its best friends strategy with French firm Darrois Villey Maillot Brochier, the firm also landed a role co-advising Alliance Boots deputy chairman Stefano Pessina on his management buyout.
Travers also performed strongly, with RPP breaking the £2m barrier for the first time, putting it in an elite group with Freshfields, Linklaters and Slaughters. The firm’s private equity group particularly showed its teeth, bringing in a steady stream of work from clients such as 3i, for which it is a panel firm, and Bridgepoint. It also scored some management advisory roles in secondary sales, such as Jimmy Choo and Tussauds.