Cobbetts and Eversheds go to the top of the class for mining the equity gap

Cobbetts and <a class=Eversheds go to the top of the class for mining the equity gap” />Cobbetts and Eversheds have emerged as the front-runners when it comes to advising on transactions in the so-called equity gap, according to research by financial information provider CorpfinWorldwide.

Companies caught in the equity gap are defined as those that are too small to interest institutional investors but too large to qualify for start-up ­investment schemes.

The research shows that Cobbetts and Eversheds advised on the most private equity deals within the £5m-£15m range during the past year. The firms ­normally act on deals with a higher transaction value.

Both ;firms ;worked on seven transactions, ­including management ­buyouts ;and ;buy-ins, bolt-on acquisitions, public-to-private deals and capital investments.

Behind them in the table were Olswang and Osborne Clarke, which each advised on five equity gap transactions.

Peter Armitage of private equity house Key Capital Partners, which targets investments in equity gap companies, says: “Many ­private equity firms have moved out of the equity gap in recent years to focus on larger transactions.

It’s ­therefore encouraging to see that top 50 firms such as Cobbetts and Eversheds remain ;committed ;to ­assisting smaller ambitious businesses.”

Despite the relatively small size of the deals involved, law firms are increasingly seeing the value in lower-end private equity work – and not just those with large volume practices.

Olswang ;head ;of ­corporate Fabrizio Carpanini says a relationship with a small or start-up company could be valuable as it could lead to advising on an IPO a few years down the line. The tiny start-up can also turn into a major corporate client, which can prove lucrative in the long run.

“It gets us in on the ground floor,” he says. “A number of these institutions will go in with £15m or so investments. If it’s looking good they’ll put in more money and help that business grow through acquisitions.”

North ;West ;firm ­Cobbetts, which last year opened an office in London to service the needs of its corporate clients, has reaped the rewards of investing in its corporate practice. In June the firm promoted three new corporate partners – the highest number in any of its practice groups.

Other firms that are increasingly ;turning towards advising equity gap companies are Addleshaw Goddard, DLA Piper, ­Pinsent ;Masons ;and Wragge & Co, all of which advised on four transactions apiece between May 2007 and April 2008, according to the research.

Addleshaws represents clients including Lloyds TSB Development Capital, Sovereign Capital and Dunedin Capital Partners, which are all active in the equity gap.

Addleshaws head of private equity Andrew Carpenter says: “There’s nothing wrong with smaller-end deals. You can still get a decent return from them.”
He adds that, unlike ­larger leveraged deals, most firms negotiated a fixed fee for transactions below around £50m.

“Some of them ask for a ridiculously low fee – and there are some law firms that are prepared to do it,” says Carpenter. “It’s a matter of at times being prepared to say, ‘I’m not going to do it at that price’.”

The research also found that the market for deals in the equity gap was most dynamic in the North, ­particularly Manchester and Leeds.

Cobbetts and Eversheds, the two firms at the top of the rankings, both have strong presences in the North West.

While the firms involved in the survey have been downscaling in terms of deal size, the number of deals remains small, with the ­private equity market being hit hard by the credit crunch.

Top two for Equity Gap work


Corporate partners: 17
Corporate revenue 2007-08: £21.4m
Recent deals:
• June: Represented Virotec in its £38m takeover by Hydrodec Group.
• June: Advised Darwen Holdings on a £16m share placing and acquisition of Jamesstan Investments.


Corporate partners: 117
Corporate revenue 2007-08: £132.6m
Recent deals:
• July: Acted for outsourcing company Spice on its FTSE listing.
• July: Represented Sony Ericsson as a stakeholder in Symbian, which was bought by Nokia for £206m.

Carpenter points out: “It’s lousy. Buyouts are ­struggling because you can’t get major amounts of debt.”

That said, Osborne Clarke private equity partner Keir Barrie notes that smaller deals have been less affected because firms are not obliged to raise as much finance.

“It’s easier to bridge the gap,” he says. “More of them are happening since the credit crunch than major deals.”

Osborne Clarke clients include ;Amadeus Capital Partners, Octopus ­Investments and Close Brothers Growth Capital.

Osborne ;Clarke ;is ­unusual, Barrie says, in that it targets small but rapidly expanding companies as well as the funds that invest in them.

“We keep close links with companies and we continue to work for them, so we’re their first choice,” he explains. “We grow with them.”

The equity gap study also reveals that the leading lenders in the market are banks Yorkshire, Clydesdale, Barclays and HSBC, beating Royal Bank of Scotland, HBOS and Lloyds TSB to the top of the table.

Despite the looming prospect ;of ;recession, Armitage of Key Capital Partners thinks the private equity market will continue to provide opportunities for the legal profession.

“In the current economic climate, generating quality deals and being able to ­provide flexible, low-geared deal structures will be the key themes for 2008 and 2009,” he says. “This is a challenge that private ­equity firms and legal ­advisers must grasp with both hands, but it also presents a great opportunity for everyone involved.”