Top five UK law firms increase hold on M&A work as recession deepens

Small and mid-size legal teams given short shrift as downturn prompts ‘flight to quality’.


Top five UK law firms increase hold on M&A work as recession deepensUK companies are flocking to the magic circle for corporate advice as the recession bites, according to half-year figures for deal activity.

Data from Thomson Reuters shows that the top five firms have tightened their grip on a shrinking M&A market, leaving smaller firms out in the cold.
It also reveals the true scale of the crisis facing corporate lawyers, with deal volume and value plummeting compared with last year’s levels.

Between May and October 2007, the magic circle plus Slaughter and May advised on UK deals worth £282bn from a total of £746bn for all the firms in the top 25.

For the same period in 2008 the top five acted on £232bn worth of transactions from a total of £346bn.

The figures appear to support the argument that larger companies are more likely to instruct top-tier lawyers during times of economic strife.

Transactions involving the big five now make up 67 per cent of deal value for all the firms in the top 25, compared with just 37.9 per cent for the first half of 2007-08.

Freshfields Bruckhaus Deringer corporate head Mark Rawlinson says: “Judging by past recessions, it has more of an impact on M&A practices in mid-size firms than those at the upper end. But we’ll all be hit.”

The same table shows just how far the booming M&A market of early 2007 has fallen during the credit crunch.

In the first half of 2007-08 law firms advised on UK deals with a total value of more than £206bn. However, the half-year figure for 2008-09 is just £138bn, meaning that transactional activity dropped by a third overall.

“It’s been the quietest quarter for UK M&A for six and a half years,” admits Rawlinson.

Freshfields remains at the top of the table for UK deals, despite the number of transactions it advised on falling from 64 to 44.

Slaughters was the best-­performing firm in the top tier, leaping from ninth in 2007-08 to second by value in the first half of 2008-09.

The firm has seen its stock soar in recent months after advising the Treasury on its multibillion-pound cash injection into UK banks and Banco Santander on its £1.25bn recommended offer for Alliance & Leicester.

The Thomson Reuters data only includes law firms acting for ­targets and acquirers.

Outside the magic circle, Lovells had a barnstorming six months, nearly doubling the value of deals compared with the previous year. It leapt from 48th to ninth place, slotting in behind Herbert Smith in the top 10.

Lovells corporate partner Steven Bryan says: “We’ve been fortunate to get some good ­mandates. I think it’s also good teamwork. People work well together here in terms of spotting opportunities.”

Among the firm’s major deals was EDF Energy’s £12.5bn acquisition of British Energy, with Lovells advising EDF on the financing

Kirkland & Ellis’s investment in the City appears to have paid off. It has made a serious investment in its City private equity and ­corporate practice in recent years, with a number of high-profile ­laterals.

Ashurst had a disappointing first half of the year. In 2007-08 the firm was sixth in the UK table with transactions worth £37.54bn under its belt. But in 2008-09 this figure fell to £2.1bn and the firm dropped out of the top 10.

Despite the dominance of the top five firms, Simmons & ­Simmons managing partner Mark Dawkins argues that the less-established corporate firms will stage a comeback this year, when the market will have adjusted to the fallout from the collapse of Lehman Brothers.

“A lot of things will have been affected by the Lehman collapse. It will be interesting to see whether that stands true in 2009 in quite the same way,” he ­comments. “There’s a flight to quality in hard times, but there’s also a flight to value.”

In the global M&A tables ­Freshfields was toppled by ­Linklaters as the world’s top ­corporate practice.

Linklaters has taken away ­mandates on some of the world’s largest transactions since the banking crisis began, advising on, among others, Lloyds TSB’s bid for HBOS and the nationalisation of European bank Fortis.

Sullivan & Cromwell, Cravath Swaine & Moore and Allen & Overy (A&O) completed the ­global top five respectively.

In the European table, the magic circle filled the top four places, with A&O in pole position. The firm advised on European deals ;totalling ;$238bn (£154.28bn) during the first six months of 2008-09.

The largest M&A deal of 2008-09, at the half-year stage, was InBev’s $52bn (£33.71bn) bid ;for ;Budweiser ;brewer Anheuser-Busch. The merger called in a raft of firms, including Skadden Arps Slate Meagher & Flom and Weil Gotshal & Manges for Anheuser-Busch and Clifford Chance and Sullivan & Cromwell for InBev.