Uncertain times cast doubt on corporate growth
3 October 2011 | By Joshua Freedman
24 June 2013
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11 February 2013
26 April 2013
27 November 2013
Big deals remain few and far between as the Greek crisis hits corporate hard.
Who would choose to be a corporate lawyer? After years of plenty, partners at even the top firms now have to scramble for the big-money deals that seem to come around as infrequently as the fast train to Farnborough (far less frequently, in fact). Even if some lawyers say the world of corporate deals is on the road to recovery, it seems that most actually think it is still on the dull side.
Certain distinct areas have been the exceptions: energy lawyers have seen a notable upturn, with deals such as GDF Suez’ £17.1bn investment in International Power, which gave roles to Clifford Chance, Bredin Prat, Carey Olsen, Ogier and Linklaters. This deal was closed during the first quarter of 2011, a period in which there was a particular surge. In the same time period, BP announced its £10bn share swap with Russian state-owned oil business Rosneft, a deal that gave mandates to Freshfields Bruckhaus Deringer and Linklaters.
Emerging markets have also been a busy, if risky, field of play.
Greece is the word
The 2010-11 figures showing UK firms’ global corporate practice turnovers for the last financial year (see table, opposite) are undoubtedly influenced by uncertainty in the markets. Summer may always be quieter than the rest of the year, but developments in Greece made the middle months of 2010 into a true silly season.
There was a slight lull over the winter months before the rush of February to March, but it was events in Greece that had the major effect on the M&A market and law firms’ fortunes, with deals and projects being put on hold.
“Last year was a year where it improved throughout the year,” says Freshfields corporate partner and global practice head Edward Braham. “Everything was looking wonderful at the beginning of May. Then we had Greece. Greece killed the summer. From September onwards it picked up slightly. February, March and April were very strong.
“You tend to find in every year there are busy and quiet spans. Last year it was a bit more protracted on the quiet side because Greece killed what’s usually a strong part of the year.”
Freshfields’ global corporate practice appears to have suffered slightly, turning over £376.2m in 2010-11, down 5.7 per cent on the previous financial year’s figure of £399m. This was in turn a 1.1 per cent decrease from the £454.3m it produced in 2008-09, although the figure was up on the 2007-08 turnover.
This was despite some impressive client wins, including on the Rosneft deal, where the firm was instructed by BP, an established Linklaters client.
Linklaters, however, saw a clear increase in its corporate revenue, turning over £475.2m, or just under 40 per cent of overall income for the firm globally. Last year the practice contributed £449.5m, some 38 per cent of overall turnover.
Corporate partner Roger Barron says the firm has a “focus on client relationships across the board” and insists partners “take a long-term view”. Chunky deals include the $10.7bn (£6.6bn) sale of telecommunications provider Zain’s African mobile business to Bharti Airtel, where it acted for Zain opposite Herbert Smith and Indian firm AZB & Partners.
Linklaters no doubt capitalised on the momentum the M&A market saw throughout the financial year: senior management insist that cross-firm turnover was far better in the second half of 2010-11 than the first.
Slaughter and May maintains its position just behind the big four of Linklaters, Freshfields, Clifford Chance and Allen & Overy when it comes to corporate turnover, although Slaughters’ figures are estimates as the firm does not disclose turnover.
Norton Rose suffered from the relative inactivity of key clients such as HSBC and Axa during the downturn, but was able to make ends meet thanks to the busy energy sector, one of the firm’s strongest tricks.
“Areas in which we’ve seen growth in business are in particular financial institutions, mining and commodities,” agrees Martin Scott, corporate head for Europe, Middle East and Asia at Norton Rose.
The firm’s corporate turnover was up some 58 per cent from £107.4m in 2009-10 to £169.3m in 2010-11, thanks to its merger with Australian firm Deacons, which went live in January 2010.
The figures are hardly a comparison: global turnover zoomed up from £307m to £488m, thanks to the five Australian offices, with corporate turnover static as a proportion of overall revenue, standing at roughly 35 per cent.
“[We had a] good time with private equity, which came back after having been dead for two years. Financial services was quite good to us as well,” recalls CMS Cameron McKenna UK corporate head Andrew Sheach.
Camerons gave a corporate turnover figure of £51.8m, or 23 per cent of overall turnover, but this includes far less of the business than was covered in the 50 per cent figure it provided last year. Any apparent massive downturn is thus insignificant; a like-for-like figure would be £45m for 2009-10.
The firm’s 15 per cent increase in corporate turnover is no doubt a sign of the overall rebound in the M&A world: Camerons’ practice, like many in the City, made significant losses during the downturn, but saw only a minimal net loss of partners, and is now recovering in line with the market. But it has made some key gains in its own right, winning work in the recovering private equity market, especially for houses investing in the healthcare sector.
The healthcare practice, headed by corporate partner Jason Zemel, has been called in to advise Sovereign Capital, a small-cap house with a healthcare focus, and has acted for Voyage, formerly Paragon Healthcare, and Ramsay Health Care.
It has also benefited from instructions from banks including Lloyds Banking Group and National Australia Bank.
SJ Berwin was another firm to see an impressive rebound after a lull during the financial crisis, with corporate, private equity and funds, all strengths of the firm, suffering in the downturn.
Although upturns in finance and litigation were the main reasons for the firm’s 5 per cent increase in overall turnover and a 40 per cent rise in average profit per equity partner, the corporate practice turned over £66.2m in 2010-11, up 10 per cent from £59.8m in 2009-10, a large increase compared with the 5 per cent upturn across the firm.
Although the firm will not provide a turnover figure for its funds practice, SJ Berwin is understood to make a handy amount from the group, and will surely suffer from its depletion when funds partners Nigel van Zyl and Oliver Rochman leave for Proskauer Rose after their resignation in July. Van Zyl has been the lead partner or co-lead partner on deals and fundraisings for Apax Partners, HgCapital, Gilde and Litorina and secondary deals for clients including the Royal Bank of Scotland.
Herbies rides again
Herbert Smith’s corporate practice retains its position as the top outfit outside the big five of Allen & Overy, Clifford Chance, Freshfields, Linklaters and Slaughter and May, although there is no shortage of questions about its future. As reported in The Lawyer (7 September), the practice missed its budget by £20m last year and has a middling corporate turnover per partner, which stands at £1.61m, well behind the magic circle.
The practice was practically rescued by a strong showing on the equity capital markets side, especially rights issues such as National Grid’s £3.2bn cash call, announced in May last year, where it acted for underwriters Morgan Stanley, Bank of America Merrill Lynch and Deutsche Bank, fielding a team led by partners Alex Bafi and Chris Haynes.
Herbert Smith has been able to capitalise on the surge in the rest of the energy sector, advising Chevron on the disposal of its European downstream business Essar on the acquisition of Shell’s Stanlow refinery, where it acted opposite Clifford Chance.
But internationality is a factor: the firm’s position in international M&A tables such as the Thomson Reuters rankings is often bolstered by the fact that its credits for appearing in deals are bunched together with alliance partners Gleiss Lutz in Germany and Stibbe in Belgium and the Netherlands.
Hogan Lovells posted a corporate turnover figure of £184m, a sum that takes into account the international firm, minus its US operations.
From legacy firm Lovells’ point of view, the merger between the UK firm and US outfit Hogan & Hartson last year nearly doubled the firm’s overall global corporate revenue. Lovells’ corporate practice turned over £162.6m in 2009-10. But the like-for-like increase excluding the US is 13.2 per cent, representing a decent year for the City firm, which, in one of the highlight deals of the year, advised SABMiller on its $10bn acquisition of Foster’s.
Hogan Lovells corporate partner Nigel Read admits that the market conditions have made it difficult for the firm to capitalise on the transatlantic merger, but says the tie-up has allowed it to retain corporate work for heritage clients on both sides, such as Ford Motor Company and News Corporation. It advised Ford on its $1.8bn sale of Volvo Cars to Zhejiang Geely last year, a deal that provided work in Europe and Asia as well as the US, and News Corporation on its acquisition of television producer Shine.
The best of the rest
Eversheds has seen a decent year for its corporate practice, but is still rather regional and thought of as a firm lacking beef in its London team. It edges ahead of big guns such as Ashurst and DLA Piper, turning over £113.4m in 2010-11, down from £127.8m last year.
DLA Piper saw a significant drop in corporate turnover but still boasts a strong practice, at least from a volume point of view. Its deal count is massive, but it lags behind rivals for transaction value.
Ashurst, meanwhile, has managed to leverage some impressive private equity relationships, most notably corporate head Stephen Lloyd’s with Apax Partners, to file a reasonable corporate turnover figure that puts it above CMS Camerons and SJ Berwin, but no doubt it will aim to top this figure with its forays into the Asian market through its tie-up with Australian firm Blake Dawson.
Simmons & Simmons’ figure of £72.9m, covering corporate and commercial, ICT and projects, puts it in a respectable 13th position. Taylor Wessing and Berwin Leighton Paisner also get a look-in towards the bottom of the pack.
But the market is still dominated by a class of the usual suspects and, right at the top, by four or five names that seem unlikely to budge.