The deal clincher

When Sir Tony O'Reilly and his Valentia consortium finally got their hands on Eircom this month, they sealed the Irish M&A transaction of the year. Three of Ireland's top-five law firms were kept busy on the Eircom deal and numerous big players from the UK and the US were drafted in. But one landmark deal is not enough to keep the coffers full, and M&A activity in Ireland is significantly down on last year. With the Irish economy, and M&A in particular, very dependent on foreign direct investment (FDI), the talk is of a slowdown which is already hitting the technology sector. The Irish domestic firms, which have seen some pretty impressive growth themselves in the past 10 years, are hopeful that the storm will soon pass and they will escape unscathed.
The battle for Eircom, Ireland's privatised fixed-line telephone operator, began more than a year ago. Last October, Eircom spun off its mobile phone business Eircell to Vodafone, as part of a long-term strategy to divest non-core assets. The Comsource Alliance, a coalition of telecoms companies from the Netherlands and Sweden, owned a 35 per cent stake in Eircell and at this stage it was obvious they wanted to sell. Three international consortia, all fronted by leading Irish businessmen, wanted to take Eircom off the stock market and into private hands. At first, the battle was fought out by eIsland led by Denis O'Brien, International Investment & Underwriting led by Dermot Desmond, and Valentia fronted by O'Reilly. After initial stages eIsland and Valentia were left to play leapfrog, each outdoing the other with higher bids.
Valentia, the eventual victor in the £3bn deal, was advised by Freshfields Bruckhaus Deringer and leading Irish firm A&L Goodbody. A&L Goodbody was, in fact, able to bill twice, because it also advised Comsource, having put in place Chinese walls. Each member also had its own legal adviser – Soros Private Equity Partners used Macfarlanes, and Goldman Sachs and Providence Equity both used Debevoise & Plimpton. Dublin firm Arthur Cox, which had traditionally been used by the government and privatised companies, worked for long-term client Eircom.

“Factor in a consortium of venture capitalists getting into bed with a trade union and you have an interesting recipe from the outset”
Paul Carroll, A&L Goodbody

On the losing side, top Irish firm William Fry advised eIsland. With Valentia's O'Reilly being the chairman of Matheson Ormsby Prentice, the firm was initially offered the consortium's work. However, it had acted for Vodafone in the earlier Eircell sale and so it was conflicted out. This meant that four out of five of Ireland's biggest domestic firms were involved in the deal in some way, with only McCann Fitzgerald left out.
The Eircom deal was revolutionary in the European market. It saw a privatised fixed-line telecoms operator bought out by private equity houses for the first time, trailblazing for other European former state companies in this troubled sector.
A&L Goodbody's senior partner Paul Carroll says: “This has been a fascinating transaction for many reasons. Not only was it the largest public takeover in Ireland ever, but it was certainly the most hotly contested in recent years. Factor in a consortium of venture capitalists getting into bed with a trade union and you have an interesting recipe from the outset.”
But overall, mergers and acquisitions in Ireland look to be down on 2000's figures. Thomson Financial's figures show that there was $19.35bn (£13.44bn) worth of M&A activity handled by lawyers in 2000, but only $4.5bn (£3.13bn) handled in the first three quarters of 2001. Even allowing for the fact that the 2001 figures cover only nine months, they indicate a huge reduction in the amount of merger activity going on in Ireland. The figures cover deals announced within the period with either an Irish target or an Irish acquiror.
Mergermarket figures (see tables page 33) do not indicate quite such a drastic drop, but still show M&A tailing off. The actual and forecasted figures from World Markets Research Centre (see graph page 33) give the broader economic picture. They demonstrate Ireland's huge levels of FDI and the reduction in inward investment. In 1999/2000, there was $20bn (£13.9bn) of FDI into Eire, which has been slashed to just $5bn (£3.47bn) this year. FDI is a major driver of M&A activity and much of Eire's FDI comes from the US.
Matheson Ormsby corporate partner Tim Scanlon says: “At the moment, interest from the US in investing and acquiring Irish companies is far more tentative than it was a year ago.” And as US companies often use US law firms for major M&A transactions, many US firms have fallen out of the Mergermarket 2001 top 10.
UK law firms are still well represented in the top 10 advisers, with Freshfields pre-eminent. The firm jumped from 21st to second place in the table of legal advisers ranked by value. In Ireland's tiny market a couple of big deals can turn the figures around and it is noteworthy that Freshfields was heavily involved in the Eircom deal.
The big UK and US firms do not target the Irish market itself, but get involved when there is FDI or some other international element to the transaction. Linklaters & Alliance made it into the top 10 M&A advisers for both 2000 and 2001. Head of corporate David Cheyne says: “Quite a lot of the big Irish transactions are cross-border, and this is where UK firms tend to be involved. Although we always love going to Dublin, we don't target Irish work as such.”
In terms of the domestic Irish firms, A&L Goodbody is top of the table for deals ranked by value – it was eleventh in 2000. Rival Arthur Cox has slipped from first place last year to third place this year. Also in the top 10 by value is Dublin corporate boutique William Fry and Matheson Ormsby. Of these two, Matheson Ormsby's increase in work has been the most dramatic, reflecting the growth of the firm during the past few years. The other big domestic firm McCann Fitzgerald is traditionally less strong in mergers and acquisitions. The four biggest Irish firms are also top of the table for deals ranked by volume, reflecting their pre-eminence in the smaller domestic market.
None of the major Irish firms feel that their home territory will be under threat from the big UK or US firms in the foreseeable future. The consensus is that Ireland is not a large enough market to make the investment worthwhile, and that the really big players have bigger fish to fry, particularly with the eastwards expansion of the European Union.
But the arrival of accountancy-tied law firms a few years ago sent some anxious ripples around Dublin's legal circles. Evans & Co, the law firm tied to PricewaterhouseCoopers, is widely perceived to be the biggest threat. Founding partner Eddie Evans was previously at William Fry and the firm has recruited from both A&L Goodbody and Arthur Cox. William Fry does a lot of work with Evans in the insolvency sector, but senior partner Owen O'Connell says: “I don't believe that there is any real evidence that clients want or prefer the one-stop shop.” Evans & Co has not been involved with any high-profile deals yet, and many firms think the threat from the accountants seems to have receded.
In fact, the lawyers are trying to turn the tables on the accountants. Competing with them on tax advice is a key strategy for several of the big Irish firms, particularly with the economic downturn threatening other practice areas. According to A&L Goodbody's Carroll: “International clients will take tax advice from attorneys, what we want to do is educate the Irish market that we can compete with accountants.”
Both William Fry and Matheson Ormsby have invested heavily in their tax departments with the latter having the biggest practice of all the Irish firms.
In terms of the economic climate in Ireland, the forecasted figures from World Markets Online suggest a downturn rather than a recession, with gross domestic product (GDP) growth plummeting in 2001 and 2002, but the economic account never actually slipping into the red. GDP is set to grow by 5.5 per cent this year and 3.5 per cent next year. This is still pretty healthy by European standards and all the major Irish firms say they have yet to feel the effects of a downturn on their own business. According to Carroll: “We continue to see increased activity in the media, healthcare and technology sectors with a considerable amount of government advisory work.”
But Matheson Ormsby's Scanlon says that although he does not feel it has fed through to his own firm's work, the technology sector may see some problems ahead. “Irish technology companies seem to be finding it harder to attract venture capital than they were at this time last year,” he says.
None of the big firms are planning any cutbacks and strong phrases such as “investing through a possible recession”, and “using it as an opportunity to recruit key talent”, can be heard emanating from Dublin. One trend that is very easy to pick out is a tendency by Irish lawyers working abroad to return to their homeland. Many Dublin firms have taken on former City partners and City-trained associates during the past few years. No doubt the numerous Irish exiles in London will be pleased to hear that there is still a route home.

Legal advisers to Irish M&A (to third quarter 2001), ranked by value
Rank 2001 Rank 2000 Firm Value (euro m) Value (£m) No of deals
1 11 A&L Goodbody 5,517 3,449.01 7
2 21 Freshfields Bruckhaus Deringer 4,307 2,692.56 2
3 1 Arthur Cox 3,479 2,174.93 3
4= 3 Allen & Overy 3,307 2,067.40 1
4= Debevoise & Plimpton 3,307 2,067.40 1
4= 28 Macfarlanes 3,307 2,067.40 1
5= 24 Cravath Swaine & Moore 1,948 1,217.81 1
5= 2 Linklaters & Alliance 1,948 1,217.81 1
5= 7 Shearman & Sterling 1,948 1,217.81 1
6= Hammarskiöld & Co 1,000 625.16 1
6= 13 Slaughter and May 1,000 625.16 1
7 6 William Fry 543 339.46 6
8 18 Ashurst Morris Crisp 504 315.08 2
9 Testa Hurwitz & Thibeault 294 183.80 1
10 16 Matheson Ormsby Prentice 204 127.53 3
 
Source: Mergermarket

Legal advisers to Irish M&A (to third quarter 2001), ranked by volume
Rank 2001 Rank 2000 Firm Value (euro m) Value (£m) No of deals
1 3 A&L Goodbody 5,517 3,449.01 7
2 2 William Fry 543 339.46 6
3 1 Arthur Cox 3,479 2,174.93 3
4 8 Matheson Ormsby Prentice 204 127.53 3
5 26 Freshfields Bruckhaus Deringer 4,307 2,692.56 2
6 10 Ashurst Morris Crisp 504 315.08 2
7 9 Herbert Smith 159 99.40 2
8= 5 Allen & Overy 3,307 2,067.40 1
8= Debevoise & Plimpton 3,307 2,067.40 1
8= 30 Macfarlanes 3,307 2,067.40 1
9= 27 Cravath Swaine & Moore 1,948 1,217.81 1
9= 6 Linklaters & Alliance 1,948 1,217.81 1
9= 22 Shearman & Sterling 1,948 1,217.81 1
10= Hammarskiöld & Co 1,000 625.16 1
10= 24 Slaughter and May 1,000 625.16 1
 
Source: Mergermarket

Legal advisers to Irish M&A (2000), ranked by value
Rank Firm Value (euro m) Value (£m) No of deals
3 A&L Goodbody 5,517 3,449.01 7
2 William Fry 543 339.46 6
1 Arthur Cox 3,479 2,174.93 3
8 Matheson Ormsby Prentice 204 127.53 3
26 Freshfields Bruckhaus Deringer 4,307 2,692.56 2
10 Ashurst Morris Crisp 504 315.08 2
9 Herbert Smith 159 99.40 2
5 Allen & Overy 3,307 2,067.40 1
Debevoise & Plimpton 3,307 2,067.40 1
30 Macfarlanes 3,307 2,067.40 1
27 Cravath Swaine & Moore 1,948 1,217.81 1
6 Linklaters & Alliance 1,948 1,217.81 1
22 Shearman & Sterling 1,948 1,217.81 1
Hammarskiöld & Co 1,000 625.16 1
24 Slaughter and May 1,000 625.16 1
 
Source: Mergermarket

Legal advisers to Irish M&A (2000), ranked by volume
Rank Firm Value (euro m) Value (£m) No of deals
1 Arthur Cox 9,125 5704.59 11
2 William Fry 3,573 2233.70 6
3 A&L Goodbody 919 574.50 6
4 Clifford Chance 1,125 703.31 5
5 Allen & Overy 5,166 3229.58 4
6 Linklaters & Alliance 7,522 4702.45 3
7 Norton Rose 617 385.72 3
8 Matheson Ormsby Prentice 501 313.21 3
9 Herbert Smith 495 309.45 3
10 Ashurst Morris Crisp 489 305.70 3
 
Source: Mergermarket