TECHNOLOGY MEDIA & TELECOMS
22 January 2001
As everyone knows, 2000 was the year when people got very excited and then bored with dotcoms. The bubble grew, then burst, and all those cynics said "I told you so". It's now much more fun counting the dotcom failures than guessing how large a sum they will get upon flotation.
But as 2001 gets underway, and the dotcom frenzy fades into memory, the question has to be asked - just what are all those IT lawyers doing now?
For the likes of Linklaters & Alliance, burst bubbles are not really an issue. While it rode a high-profile wave, when the tide turned it had no problems adapting. After all, an international magic circle member has the resources to shrug off such things and return to the sort of work that got it to the top in the first place. And for those heavy hitters still doing e-initial public offerings, people only care these days about the behemoth deals - Freshfields Bruckhaus Deringer and Orange, enough said.
But what about the smaller firms, the mid-tier players who have boosted their technology departments on the back of fledgling internet companies?
The technical side of IT work obviously continues unabated. But what is going to fill the corporate IT void left by the dotcom deflation? One contender is the glamorous, fast-moving and funky sector of IT outsourcing. Okay, so I lied about the glamorous, fast-moving and funky bit, but when your IT practice is still rip-roaringly busy and the fees, which are notably higher than initial public offering rates, are still coming in, who cares about sex appeal?
Clients hire outsourcers for one of two reasons. Either they know nothing at all about IT and get a company in which does, or it is a way of saving costs. Outsourcers are associated with the infrastructure of IT, not the dotcoms. The very fact that it is not glamorous, fast-moving and funky means the area is less vulnerable to the ever-changing preferences of investor and market fads.
The deals are also closer to traditional commercial and corporate transactions. Often a transfer of assets is involved, meaning the IT/corporate partner must be backed up by lawyers from the tax, property and employment departments. As well as higher fees, contracts tend to be meaty - tens of millions of pounds as opposed to hundreds of thousands - and often last as long as 10 years, changing as IT needs alter and technical breakthroughs occur. And more often than not the external firm will be called upon.
A range of firms already have a strong presence in this area. The big five will often work for clients who are outsourcing and while firms such as Allen & Overy, Shaw Pittman, Field Fisher Waterhouse and Masons regularly advise players such as EDS, Accenture (formerly Andersen Consulting) and ICL.
Masons has a long-term relationship with ICL, often working on deals valued at around £1bn. As The Lawyer revealed last week (15 January), ICL widened its informal panel to include Barlow Lyde & Gilbert as one of its core advisers, after Barlow Lyde advised on a £10.5m 10-year contract - not huge by outsourcing standards but a foot in the door.
Barlow Lyde has three major outsourcing clients: ICL, Pricewaterhouse-Coopers and Gap Gemini - only three but what a group of clients to have. While the firm only occasionally cashed in on the dotcom boom, it did not get its fingers burnt when the collapse came.
But what is the real joy of this sort of work? It is recession-proof. True, those companies which outsource because they would rather have someone else get their hands dirty with all that technology nonsense will no doubt drag it back in-house as soon as a whiff of a bumpy landing appears. But for those businesses that do it to bolster the balance sheet, outsourcing will continue to save them money in a recession, when every penny counts. And that will continue to keep the lawyers' coffers full too. Which makes just about everyone happy, regardless of sex appeal.