Firms hope AIM clients will stay true as they move on, but not all do. Joshua Freedman looks at the latest rankings
Comparisons between the legal market and the football league pyramid are never far off, with glamorous names holding on to the biggest prizes and underdogs vying, but usually failing, to break the big boys’ stranglehold at the top.
Equally, the FTSE100 may be where the allure is, but AIM, the Football League Championship of the corporate world, has just as much to get the pulse going.
The latest Hemscott ’AIM Advisers Rankings Guide’, which classifies advisers by number of AIM-listed clients, shows a strong volume of movement over the course of the years, as clients switch law firms, cut costs, delist from AIM or find themselves bumped up to the main market.
According to market observers, AIM clients remain close to their lawyers, with non-legal executives sharing a tight relationship with their trusted outside counsel. This compares with high-end FTSE clients, where general counsel often instruct outside lawyers with CEOs and chief financial officers looking over their shoulders.
So AIM gives a look-in to smaller names, whereas FTSE general counsel may feel forced to instruct their institutional advisers lest their superiors question the use of a firm without magic- or silver-circle branding. Getting a range of quotes is also almost a necessity for some FTSE general counsel.
AIM specialist Elliot Shear, managing director of Whale Rock Legal, says advisers to AIM-listed businesses have a close connection with their clients.
“You often don’t have a general counsel in these businesses – in some ways there’s less pressure on clients to shop around,” says Shear, until recently a corporate partner at Nabarro.
Memery Crystal chief executive and AIM head Lesley Gregory says: “I don’t think that it’s common for AIM companies to change advisers that often.”
Shifts in advisers tend to happen when companies are taken over or listed on the main market, she adds.
The concept of the trusted adviser and the loyal client is mirrored in the rankings, which show a relatively flat quarter in terms of AIM client numbers. Firms at the top have seen minimal changes in the main.
Ups and downs
Pinsent Masons saw a solid quarter, starting and finishing with 43 AIM-listed clients, although this was not enough to keep the firm in first place. It was overtaken by Memery Crystal, which, on the back of six client gains, finds itself top of the rankings for the first time since Hemscott launched its guide nearly four years ago.
LG, which has traditionally had a stranglehold on the top of the AIM market together with Pinsents, drops to third, turning out a net client loss of just one – although this figure can include clients being delisted or floated on the main market.
The rest of the leaderboard is made up of a mix of big City players, US-headquartered firms (K&L Gates, although not ranked, is mentioned as a firm with AIM visibility), national outfits and offshore firms. Carey Olsen jumps to fourth, despite the Channel Islands firm losing one client on the previous quarter, dropping from 38 to 37. Such offshore firms get instructions from funds using the Channel Islands as a handy location for tax reasons.
Carey Olsen gained China Wonder as a client from Manchester firm Kuit Steinart Levy.
Norton Rose finds itself in eighth place, jumping one, with a net gain of one AIM-listed client.
The figures represent an apparent decline in the AIM legal market for Norton Rose, which is one of only three firms to have come top of the rankings since they were first published, LG and Pinsents being the others. In October 2007, the firm led the pack, 20 clients ahead of Memery Crystal which was in eighth place.
Now Memery Crystal leads Norton Rose by 16 clients.
According to Julian Stanier, a corporate finance partner at Norton Rose, the firm’s performance in the rankings reflects the firm’s focus on larger deals, even if its client tally is lower than competitors’. It also reflects a concentration on clients that have moved into the big time, he says.
“We’re focused on the larger end of the market,” Stanier points out, admitting that the firm produced stronger results in previous years. “Most of the deals we do tend to be complex, cross-border deals.”
Stanier cites clients such as Domino’s Pizza, which it now acts for following its flotation on the main market, although it did not advise on the actual listing. Its AIM tally has suffered from the deletion of market research company ToLuna, which was delisted, and Park Plaza Hotels, a client of Norton Rose and Carey Olsen that listed on the main market in the past quarter. It did, however, gain Archipelago Resources, a Deacons client, following its merger with the Australian firm last year.
Memery Crystal, on the other hand, has had a strong AIM quarter, especially in the resources sector, an offering bolstered by the hire of oil and gas partner Sean Rush from Petro-Canada last summer. The firm has advised on four admissions so far in 2011 – for Kolar Gold, Ferrex, Red Emperor Resources and African Mining & Exploration – and snatched Strategic Natural Resources as a client from Squire Sanders Hammonds. It also advised Baobab Resources on a £4.65m AIM fundraising after meeting the new client at a mining conference.
Gregory says the firm’s success is no sudden surge. “We’ve always been up there in the rankings, just not in first place,” she asserts.
The AIM market has previously been a happy hunting ground from the perspective of firms focused on TMT, with a mass of IT companies seeking admissions before the downturn, providing work for sector specialists such as Olswang, a traditional stalwart of the AIM scene.
Now, energy and natural resources are the vogue sector. “The deals that seem to be going ahead are mining, oil and gas deals, particularly from emerging markets,” says Stanier.
The bustling sector has given rise to some key client movement. Appleby gained Infrastructure India from New Delhi firm AZB Partners, while BLP scooped Ncondezi Coal Company and Zanaga Iron Ore Company from Charles Russell. Ncondezi had also previously been advised by Mozambique firm Pimenta, Dionísio e Associados.
Advisers can drop down in the rankings by virtue of their clients being listed on the main market – a change firms would see as more of a success than a failure. This is the case for LG, which made a net loss of just one AIM-listed client in the past quarter, the same period in which its client Cape jumped up to the big time.
LG energy and natural resources head Tom Nicholls sees promotions such as these as a measure of the firm’s success.
“We tend to focus on the top end of AIM,” he asserts, confirming that the firm has continued to act for Cape in the main market following its full listing – a deal that LG also handled.
“We’ve had a 100 per cent record of keeping all our clients as they’ve moved up [to the main market],” Nicholls says.
But in the longer run, do clients keep their loyalty to advisers once they have graduated from the secondary market?
“A lot of companies use AIM as a stepping stone [to the main market],” Martin Finnegan, corporate partner at Nabarro, points out. “For a lot of them, it’s quite a relationship-shaping time. It’s actually a process that brings people together and makes the relationship tight. You can often cement a relationship for the long-term through the process.”
This means clients that go through AIM admissions develop a strong link with their preferred lawyers.
Small firms can take clients to AIM or even out of it to a full listing, but market sources suggest clients move gradually away from their AIM-focused law firms as they slowly migrate to the FTSE 350, 250 or 100. Suddenly, firms’ contacts feel more pressurised by their bosses to hire bigger firms or a broader range of advisers. No one ever gets fired for hiring a City big-hitter.
With clients cutting costs, firms are striving to undercut rivals. Some are even said to be charging next to nothing and using AIM admission instructions as a loss-leader. Companies are also looking to get everything they can out of as few advisers as possible.
“What everyone’s focused on at the moment is costs,” says Stanier, who adds that businesses will take any opportunity to go to one firm for all their advice. “This does happen in the AIM sphere. It’s a tough time for lots of people. But I’m quite confident that it’s going to get better, particularly in natural resources.”