If that call came in to your firm tomorrow morning,
where would it go?
If the answer is, "anyone’s guess," and if you consider
your firm "a player," you have some work to do.
Consider that at last week’s Davos meeting of the
"World Economic
Forum," one of the more outspoken hedge fund
managers asked, "Why
can buyout firms take public companies private and
make enormous returns, while the same type of returns
seem out of reach
for public companies and their shareholders?" While
the reasons for private companies to outperform their
public brethren are extremely complex, not to mention
hotly disputed, the market today (meaning the people
who have billions at their disposal to invest) believe
it so, and are acting accordingly.
Just listen to The Wall Street Journal‘s
year-end wrapup (for 2005, emphasis supplied):
"It was the biggest year for mergers and
acquisitions since 2000, with $2.9 trillion in announced
deals, up 38% from a year ago, according to research
firm Dealogic. The list included Procter & Gamble’s
$60.8 billion buy of Gillette […] Dealing was also brisk in the technology sector,
led by the $11.4 billion private-equity buyout of SunGard
Data Systems…. Private-equity
firms racked up a record year, with $493.8 billion
in deals, or 17% of total global volume. Nine of the
10 biggest private-equity deals on record happened
this year,
according to Dealogic, including the $15.3 billion
buyout of Danish telecommunications firm TDC by Kohlberg
Kravis Roberts, Apax Partners and others and the $15
billion buyout of Hertz by Clayton Dubilier & Rice,
Carlyle and Merrill Lynch Global Private Equity.
Look
for more of the same next year, with private-equity
acquirers hunting in packs, making bigger deals possible."
No kidding about the deals getting bigger: "With
some private equity funds raising as much as $10 billion,
the conversation has turned to whether there will be
a day when a $100 billion fund arrives, fundamentally
changing the landscape between public and private businesses."
But
isn’t there a limit to how large a fish private
equity can swallow and still create the out-sized market
returns they’ve enjoyed so far? To the contrary: Some
of the smartest money is betting that "the next
big opportunities [are] not in small companies but in
big companies, where the inefficiencies are writ large.
As one big private equity investor said, "The
bigger the company, the better chance it is badly managed.""
O’Melveny & Myers chimes in: "The buyout
funds are red-hot, having reached unprecedented sizes."
So which law firms are getting the lion’s share of
this business? According to Bowne,
in North America last year the leader in buyout transaction
volume (number of deals) was Kirkland & Ellis (31)
and the leader in total value of deals was Simpson-Thacher
at just shy of $16-billion. Other familiar names
included Weil-Gotshal, O’Melveny & Myers, Latham, Cleary-Gottlieb,
and Ropes & Gray. In Europe, meanwhile,
the volume leaders are Linklaters, Clifford Chance,
and Lovells, with 65 deals between them, and in value,
Clifford Chance is #1 at nearly €19-billion,
followed by Freshfields at €11.5-billion. US
firms include the usual suspects: Weil-Gotshal,
Cleary, White & Case, Willkie-Farr, and Shearman and
Sterling also make respectable showings, solidly in
the top ten in terms of deal value.
So my point would be?
Be nimble, be flexible, above all be aware of
macroeconomic developments. Lucrative practice
areas do not materialize out of thin air; they are
the creatures of capital flows around the country and
around the world. Five years ago hedge funds
and private equity were relatively somnolent, certainly
in the public’s eyes and even in the eyes of relative
financial sophisticates.
The world changes, and the composition of its demand
for top-of-the-pyramid legal services changes in sync. Incumbents
at the top today have no inalienable right to their
privileged status. On what more optimistic
and energizing note could you conceivably begin your
week?
