Number crunching: Sullivan & Cromwell

The credit crunch bit the London offices of US firms hard when it comes to M&A deals involving British targets. Last year the level of deals involving UK targets was the lowest by value since 1996, but Sullivan & Cromwell London partner Tim Emmerson is predicting a European uptick.

“There’s growing interest from Chinese state-owned enterprises and US strategic and private equity clients in assets in Europe, the focus being infrastructure, IP/IT, natural resources and distressed banking assets,’’ he adds.

While the future may be bright for Sullivan, the past few years’ data from Thomson Reuters reveals a significant drop in UK target M&A activity at the US firm. (The figures show only announced M&A deals involving a UK target that Sullivan advised on from mid-2007 to November 2011).

Sullivan advised on $81.7bn (£51.7bn) worth of M&A deals on the eve of the credit crunch, $23.4bn in 2007 and $58.1bn in 2008, compared with around $5.1bn in the three years that followed.

Comparing the value of UK M&A deals between 2008 and 2011 shows a whopping fall of 98 per cent. But the difference may not be as eye-watering as it seems. One of the firm’s biggest deals, Akzo Nobel’s attempted takeover of UK rival ICI for $15.7bn in 2007, spreads credit across eight other firms (Allen & Overy, Blake Cassels & Graydon,

De Brauw Blackstone Westbroek, Freshfields Bruckhaus Deringer, McCarthy Tetrault, Slaughter and May, Tozzini Freire Teixeira e Silva and White & Case), with Sullivan advising on US – not UK – aspects.

 The next year saw Sullivan advise Goldman Sachs on luxury goods maker Richemont’s $19.8bn spin-off of its stake in British American Tobacco, led by managing partner Bill Plapinger. This deal alone accounted for 34.2 per cent of the firm’s UK M&A value in 2008.

There is an interesting trend here – scoop the best deals and forget the deal-count. In the past five years the number of deals with a UK target or acquirer is just 26, but the value is impressively chunky – $84bn.

While the value and volume of deals involving UK targets has fallen significantly since 2007 (2011 saw just three deals with a combined value of $893m) the firm worked on two of the world’s top three deals in the first half of 2011 – AT&T’s $39bn acquisition of T-Mobile from Deutsche Telekom and Johnson & Johnson’s $21bn bid for Synthes.

Unusually for the London office of a US firm, Sullivan has a pretty high ratio of domestic/oversees acquisitions – eight out of 24 transactions were UK-to-UK while six were US-to-UK.

Although marginal, the numbers suggest that Sullivan has a strongly constructed presence in the UK – a promising position in advance of a European uptick.

Capital interest

Looking at 2011 from a purely UK target vantage-point it may seem drab, but it should be noted that this limited view skims over some notable deals involving Sullivan’s London office, including Microsoft’s $8.5bn (£5.2bn) acquisition of Skype Global led by London partner Richard Morrissey and the lead role on US private equity group Apollo’s $1.3bn offer for Brit Insurance in 2010.

According to the firm, looking at UK targets is not how it measures M&A activity, maintaining that 2011 was a lucrative year. In other words, activity may not have been as UK-centric as in previous years, but there was a lot of it.

Top UK M&A deals 2007-11

  1. Advised Goldman Sachs on Richemont’s $19.8bn (£10.2bn) spin-off of its stake in British American Tobacco in 2008
  2. Joined a raft of elite firms acting for Akzo Nobel on its $15.7bn acquisition by ICI in 2007
  3. Advised Lake Acquisitions, alongside US and UK firms, on its $15.4bn acquisition of British Energy in 2009
  4. Goldman Sachs, advising Thomas Cook with Citigroup, recommended Emmerson for the $2bn merger of travel company Thomas Cook with MyTravel Group in 2007
  5. Advised Lake Acquisitions on its £11.98bn ($23bn) acquisition of British Energy in 2008 alongside a raft of magic circle firms