Linklaters Tops Deal Advisers as M&A Volume Plummets 38 Percent
By Lindsay Fortado
Jan. 2 (Bloomberg) -- Linklaters, hired to advise on four of the 10 biggest deals in 2008, led all law firms in mergers and acquisitions during the smallest deal market in four years.
The London-based law firm ousted the top law firm for the past four years, New York-based Sullivan & Cromwell, according to data compiled by Bloomberg. Sullivan & Cromwell ranked second among firms representing buyers and sellers as total announced mergers, acquisitions and divestitures plunged 38 percent to $2.50 trillion from $4.06 trillion last year.
The collapse of the credit and debt markets curbed strategic mergers and acquisitions and erased large private-equity deals. Deal volume dropped 43 percent from the third to the fourth quarter as the financial economy collapsed in September. Lehman Brothers Holdings Inc. filed for bankruptcy in September, and Merrill Lynch sold itself to Bank of America Corp.
“2008 is the year everyone in the deal world ought to be happy to see the back of,” said Joseph Frumkin, managing partner of the mergers and acquisitions practice at Sullivan & Cromwell. “It was a very tough year, not only because deals were down, but everyone was worried about the economy.”
The outlook for mergers and acquisitions in 2009 is bleak, and a rebound isn’t likely until at least the second half of the year, said George Schoen, a partner at Cravath, Swaine & Moore in New York.
“2009 is not looking very good,” the attorney said. “Because of what’s going on in the economy, it’s not an environment where you’re going to see a lot of companies enthusiastic about making a major acquisition until they see things turning around a bit.”
Attitude Shift
Schoen said there has been a change in business psychology since September.
“People are focused on liquidity and cash flow rather than doing transactions,” he said.
Law firms struggled with the lack of business in 2008. At least three shut down: Thacher, Proffitt & Wood in New York; and San Francisco’s Heller Ehrman and the Thelen firm.
Others fired lawyers, including three U.K. firms in the top 10 among M&A advisers. Linklaters cut 125 attorneys in Eastern Europe; Clifford Chance dropped 26 associates in its U.S. offices; and Freshfields Bruckhaus Deringer said it was dropping as many as five real estate lawyers in London.
While none of the New York-based firms in the top 10 trimmed their ranks, most slashed year-end bonuses to salaried lawyers by as much as 73 percent. Cravath was the first to announce the lower payouts, awarding bonuses of $17,500 to $30,000 compared with last year’s $45,000 to $110,000.
Linklaters No. 1
The 2,644-lawyer Linklaters led global advisers to buyers, sellers and targets in M&A deals for the first time in six years.
The firm, along with Sullivan & Cromwell, advised InBev NV in its $60.8 billion takeover of Anheuser-Busch Cos., the year’s largest deal after the mining company BHP Billiton Ltd. dropped a $147.2 billion hostile bid for Rio Tinto Group in November.
Linklaters also helped advise Merrill Lynch in its sale to Bank of America for $40.5 billion and Lloyds TSB Group Plc in its $17.1 billion bid for HBOS Plc.
“In the sort of work that has predominated in the last quarter, I reckon we’ve been ahead of anyone else in leading on those deals, both in the U.K. and abroad,” said David Barnes, the head of Linklaters’s corporate group. “Our strategy in the last few years is to build out a strong U.S. presence.”
Linklaters is the second-largest London law firm by revenue. Partners earned 1.44 million pounds ($2.08 million) on average in the year ended April 30, according to figures it filed with a U.K. regulator. The largest law firm by revenue, Clifford Chance, ranked sixth among legal advisers on deals in 2008.
8% Growth
Linklaters handled a volume of deals 8 percent higher than in 2007. Sullivan & Cromwell advised on $308.9 billion in deals, down 29 percent.
M&A “was slower than in previous years, but our financial- institutions practice was so busy it made up for it,” Sullivan & Cromwell’s Frumkin said. “Some of these financial-institution deals were relatively small in league-table terms but were very significant transactions in the context of 2008.”
Chairman H. Rodgin Cohen, 64, led Sullivan & Cromwell lawyers during the fall crisis as they advised seven financial firms including Lehman, Fannie Mae, JPMorgan Chase & Co. and Goldman Sachs Group Inc.
Four of the 20 largest deals of the year involved distressed financial institutions. Besides the Merrill and HBOS deals, the Netherlands’ nationalization of Fortis for $23.2 billion was the ninth-largest of the year, and the pending sale of Wachovia Corp. to Wells Fargo & Co. for $14.8 billion was the 16th.
Decline Foreseen
Barnes, at Linklaters, said he expects deal volume to decline in 2009.
“The downward trend will continue, but there will still be work to be done,” Barnes said. “Companies will have capital to move around. Buyers and sellers want to move assets, so deals will be done.”
The market will begin to pick up “when people start to feel comfortable that we’re not declining any more and not in a recessionary period any more,” Schoen said. “I would hope that happens some time in ‘09. From a general economic perspective, I don’t think we’re seeing those kinds of indicators just yet.”
Deals hit a record high in 2007 on the strength of the first half of the year, boosted by private-equity firms and the availability of debt financing for leveraged buyouts. As the subprime crisis and subsequent credit collapse hit, transactions fell in the fourth quarter and continued to decline through the first quarter of 2008.
4th-Quarter Drop
Deals in the fourth quarter fell to $411.3 billion from $775.9 billion in the same quarter in 2007 and $1.09 trillion in the fourth quarter of 2006.
September saw the economy take a turn for the worse, Schoen said.
“That’s when you saw the equity markets go crazy, so it was harder to do stock-for-stock deals,” he said. “Targets weren’t sure what their true value was. There are just some inherent difficulties because of the credit-market disruptions in September, and that’s carrying on today and making it much harder to put a deal together.”
Still, some companies with healthy balance sheets will be “out there being opportunistic, trying to get good bargains,” while the costs and competition are low next year, Schoen said.
Private-equity volume plummeted 69 percent in 2008 because of the lack of credit. The leveraged-buyout market isn’t likely to see a rebound in 2009, Frumkin said.
“Private equity as we knew it is pretty much dead,” he said. “It’ll certainly be 2010 before the classic-style private- equity deal comes back and is competitive with strategics.”
New York Firms
Six of the 10 leading law firms in 2008 were New York-based, compared with four in 2007.
Making the biggest jump to the top 10 was Cleary, Gottlieb, Steen & Hamilton, based in New York, which ranked ninth after being 29th in 2007. Toronto-based Blake Cassels & Graydon rose from 10th to fifth place. Linklaters was first after a seventh-place showing the previous year, and Skadden jumped to fourth from ninth.
Last Updated: January 2, 2009 00:01 EST |
