Last year, The Lawyer IPO Survey, which covered the 18-month period from January 1999 to June 2000, paid witness to one of the most dramatic eras in equity capital markets. The dotcom bubble kept on growing until the burst was inevitable. As one corporate finance partner put it last year, there had been nothing like it since the South Sea Bubble. A year on and stock markets around the world are still feeling the aftershocks of the crash. Investors have become more wary, particularly of technology stocks. Nasdaq continues its historic nosedive and more and more companies are choosing different ways to raise funds that do not include initial public offerings (IPOs). Just look at how well private equity is doing – Apax Partners, for example, recently announced it had created one of Europe's largest ever funds: the Apax Europe V Fund rose a staggering £2.5bn last month.
So what will The Lawyer IPO Survey 2001, covering the 12-month period between July 2000 and June 2001 inclusive, have in store? There will undoubtedly be a number of key aspects to watch out for, specifically how the loss of investor faith in technology stock will impact the level of IPO activity and the firms which made names for themselves acting for technology clients.
Last year, Linklaters & Alliance was the clear market leader in all respects for London Stock Exchange (LSE) main list work, acting on 21 deals for issuers and investment banks with a total deal value of £17.2bn.
Finding out if this can be repeated will be one of the more interesting elements of the 2001 survey. Linklaters had much to thank the dotcoms for last year. Corporate finance partner Casper Lawson, acting for Freeserve in August 1999, gave the firm a mammoth boost in new economy IPO work. The float was unique as the fledgling internet service provider (ISP) did not comply with LSE listing rules, and it forced the introduction of Chapter 25. This relaxed a range of trading restrictions in response to the amount of new economy clients, such as Freeserve, that were eager to list. This sort of historical impact could only boost Linklaters' reputation.
Although Linklaters has a balanced portfolio of bank and issuer clients, it remains to be seen whether it has leaned too far in acting for new economy companies. In March 2000 it acted on lastminute.com's flotation, which was the straw that almost broke the dotcom's back. Its market capitalisation has since dropped to £115m, almost a fifth of the listing price.
After the bubble burst, a range of planned IPOs were scrapped and many firms lost out on expected fee income. Clifford Chance, for example, worked on 15 deals that were cancelled in the months towards the end of the 2000 survey period. Freshfields Bruckhaus Deringer also suffered and even market leader Linklaters lost an estimated £1m in postponed floats (The Lawyer, 17 July 2000). Coupled with current market conditions, the question is, has this coloured their outlook on future IPO work? Is it still worth the risk?
This depends on the risk/return ratio. Freshfields, for example, is acting on the mammoth Orange IPO, advising banks Dresdner Kleinwort Benson, Morgan Stanley Dean Witter and Société Générale. Corporate partner Tim Emmerson won the work for the firm. Slaughter and May is also involved, representing Orange with US firm Shearman & Sterling. Could this be the start of a new trend, where volume is abandoned in favour of larger and more complex, therefore more profitable, deals?
Allen & Overy (A&O) is likely to continue its IPO practice. It made significant inroads in 2000 and ended the year by establishing a dedicated 10-partner equity capital markets group (The Lawyer, 11 September 2000). Much of this was on the back of one partner, Kerry Spooner, and her developing relationship with UBS Warburg. How A&O has used this to challenge the likes of Linklaters remains to be seen. But A&O was understood to have spent most of 2000 knocking on the doors of investment bankers, attempting to forge new relationships. The question is not only whether it worked, but also whether the dividends have started to come in, particularly in a much-weakened market.
The firm is certainly taking the right approach. The investment banks are the driving forces behind any IPO. An issuer may have its own preferred and trusted adviser, but if the bank wants someone else to represent the company, so be it. And in equity capital markets, relationships between bankers and lawyers are crucial, as it is often the banker, and not the in-house legal team, who selects external advisers.
Other names that are worth looking out for this year include Norton Rose, Herbert Smith and Brobeck Hale and Dorr. The US-based UK partnership of Brobeck has a set of fantastic technology clients such as Autonomy. But nearly all have suffered from the change in attitude towards technology stock, so it is debatable whether Brobeck will be able to repeat its 2000 showing.
But IPOs are not exclusive to the top tier. Smaller listings by smaller companies mean that AIM tends to be the domain of medium to small firms. It was no surprise therefore when 12-partner Memery Crystal topped The Lawyer AIM Survey 2000. The firm has established relationships with a range of corporate finance houses including Seymour Pierce and Smith & Williamson. It is unlikely any of these will have changed in the past 12 months. And Memery Crystal has not been sitting on its laurels – late last year it won AIM giant Old Mutual as a new client (The Lawyer, 27 November).
The magic circle and the larger City firms were few and far between in the AIM survey, although Norton Rose and Slaughter and May did crop up on three IPOs each. The survey was dominated by the likes of Gouldens and Olswang, which both recorded impressive performances. Memery Crystal was the most balanced firm, appearing in all four league tables. The firm has a winning spread of issuer and underwriter clients, handling both high-volume and high-value work.
Olswang acted on 14 listings, second only to Memery Crystal's 26. Taylor Joynson Garrett (TJG) followed with 13. But again, many of these deals were technology based – Olswang and TJG have established themselves as technology players, but in a dramatically different market it will be interesting to see whether a need for transparent diversification is required.
However, Olswang has a corporate ace up its sleeve. Last year it poached two corporate finance partners from Berwin Leighton – Chris Mackie and Fabrizio Carpannini (The Lawyer, 3 July 2000). Their brief was to develop the corporate finance practice. And they have – already the firm has taken its first instructions from a host of new big ticket clients, including Lloyds TSB Venture Capital, F&C Ventures, Friends Ivory & Sime, Gresham Trust, Smith & Williamson and Sovereign Capital. Some of the instructions, notably Lloyds TSB Venture Capital, have been at the expense of Berwin Leighton. Such institutions, while on the private rather than public equity side, will stand the firm in good stead.
Olswang also took the innovative step of forming a joint venture corporate finance house, Longacre, with JP Morgan last year. The question of whether this has all paid off will be answered in the July survey.
Private equity specialist SJ Berwin will also be one to watch in this year's survey. The firm made a deliberate effort last year to cash in on the AIM market by courting potential clients with seminars and mailshots. And although private equity deals accounted for the majority of its corporate finance practice, IPO work made a respectable showing of its own. Having said that, just about every firm benefited from companies listing straight away in last year's buoyant markets. Often third, second or even first-round funding was abandoned in favour of companies going straight to market. Then the dotcoms crashed, everyone remembered their heads and listing was put back into its more conservative and traditional place. Whether this has affected SJ Berwin's corporate finance balance is yet to be seen.
Pinsent Curtis (now Pinsent Curtis Biddle) and Edge Ellison (now Hammond Suddards Edge) also achieved rankings in the AIM tables. Questions will arise about how their recent mergers will affect those rankings.
But regardless of individual firm approaches, this year's survey will paint a very different picture. Nearly half of all AIM IPOs as of last June were technology-based, meaning AIM will feel the pinch of the crash keenly. Likewise, the fledgling techMARK will be affected by market discomfort. And as Nasdaq, the market techMARK was set up to rival, continues its plummet, the omens are not good.
What a difference a year makes. This time 12 months ago, dotcoms were still riding high. Since then there have been crashes, burned fingers and shifting FTSE rankings. But it is not all doom and gloom. Old-fashioned, boring and unsexy stocks are having something of a resurgence and are replacing the new economy companies that went crashing out of the FTSE 100. The return to favour of old economy investments is significant for firms which have nurtured long relationships with such clients. While Linklaters has created a name for itself in acting on technology IPOs, its future performance, and those of many other firms hoping for a good showing in this year's IPO survey, may depend on how well they have looked after and sought old economy clients.
IPO survey methodology
The Lawyer IPO Survey 2000 was the first comprehensive survey of UK initial public offerings (IPOs) and firms that work in equity capital markets. Researched and compiled by The Lawyer, it covered the 18-month period between January 1999 and June 2000 inclusive. It was published in two parts, the first focusing on the London Stock Exchange (LSE), including techMARK. The second focused on AIM.
Both included a table of all new flotations on the relevant market (including dual listings) during the relevant period. The table was then broken down to reveal the following:
Total volume of UK IPOs
Total value of UK IPOs
Top five firms based on work done for
issuers by volume
Top five firms based on work done for
issuers by value
Top five firms based on work done for banks
Top five firms based on work done for
banks by value
The value of the market over the relevant period
Number of IPOs on techMARK
Number of technology and non-technology IPOs on AIM
The 2001 survey will cover the 12-month period between July 2000 and June 2001 inclusive. It will be published in July.
All queries and submissions should be addressed to Abigail Townsend (020 7970 4644). You can also fax information on 020 7970 4640 or email it to firstname.lastname@example.org. Please note: it is imperative that information about your firm's IPO work is received well before the publication date if it is to be included.