City firms get lion's share of 'mega deals'

FIGURES showing a trend for larger and fewer buy outs could mean that only a handful of law firms are likely to be able to stay in the top end of the increasingly polarised market.

Only a few larger City firms such as Ashurst Morris Crisp, Clifford Chance, Allen & Overy and Lovell White Durrant are seen as having the expertise to advise on the huge cross-border buy outs involving complicated bond issues or securitisations that have been a feature of 1997 and are expected to continue into 1998.

The Centre for Management Buy Out Research says UK buy outs for 1997 were worth £10.4bn, up a staggering 33 per cent on the value for 1996, which itself was a record year.

But at the same time the number of deals only increased slightly by 3 per cent to 660. Maghsoud Einollahi, a corporate finance partner from Deloitte & Touche, which sponsored the analysis, said: 'The second half of the year saw lower deal numbers but with higher value deals, reflecting a growing trend in the market the rise of the 'mega deal'.'

Deals are not only becoming larger, said Charlie Geffen, head of buy outs at Ashurst Morris Crisp, but are involving more cross-border elements and more complicated financing such as 'junk' bond issues and securitisations.

'The market is becoming increasingly polarised between the large cross-border deal and the more ordinary, relatively simple, domestic deals.'

He said not every law firm would be able to advise on the larger end of the market.

The trend is driven by venture capitalists who see larger deals as reducing risk.

According to Tony Hyams, regional director for BZW Private Equity, they are also increasingly being forced to look outside the UK for 'attractively-priced opportunities'.

Hammond Suddards' venture capital group head Simon Inman acknowledged that it was 'obviously a risk' that national firms such as his could be kept out of the top end of the market. But he claimed that the trend applied not just to buy outs but to all mergers and acquisitions.

'It's a function of the general overseas expansion of UK companies in the past 20 years,' he said. 'You won't pick up work just by hanging around the UK buy out market hoping to pick up big cross-border buy outs. You have to hang around the people who are going to do it.'

He acknowledged that Hammond Suddards would not have the expertise to advise a bank on a buy out with complicated securitisation financing, but when it came to innovative 'junk' bond financing he said none of the UK firms had the expertise.

He pointed, for example, to the fact that New York firm Cleary Gottlieb Steen & Hamilton had had to advise on doing a junk bond financing of the recent Naafi privatisation.