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Mergers and acquisitions activity is booming. Globally, the number and size of deals this year is heading toward record levels, with cross-border deals taking centre stage as companies take advantage of cheap financing, according to a just published survey by Accenture and the Economist Intelligence Unit.

Demand for other forms of corporate finance is strong, too, driven by an increasing number of buy-outs, initial public offerings (debt and equity) and private equity deals. It’s not only bankers that are making a good living from this. The lawyers that provide the legal advice and draft the contracts are doing well too.

City of London lawyers are among the best, and that’s where much of the corporate action is. But the bigger firms have spread their wings in recent years and opened offices around the world to cash in on rising demand elsewhere, including the US, which is the world’s biggest corporate market.

But how important is it for a UK legal practice with big corporate finance ambitions to have a strong US arm? Some would say it is very important, since that is where so many M&As and buy-outs originate. But the consensus seems to be that it is not important unless you are in the magic circle – the top London law firms of Clifford Chance, Allen & Overy, Linklaters, Slaughter and May, and Freshfields Bruckhaus Deringer. Many less famous City firms are making decent livings out of corporate finance advisory work – some of it originating in the US – whether they have a US arm or not.

Clifford Chance
For an opinion on this matter, who better to start with than Clifford Chance, the world’s biggest law firm. It has 29 offices in 20 countries, including three in the US. With its HQ in Canary Wharf, the firm is structured around six global practice areas: corporate/M&A, banking and finance, capital markets, litigation and dispute resolution, real estate, and tax, pensions and employment. Each practice has industry-focused teams – for example, corporate/M&A will provide legal services to the hotels, construction, financial institutions, airlines, energy and many other sectors.

The corporate/M&A practice is the firm’s biggest single practice area, generating just over a quarter of its revenue and about a third of its profits. That probably makes Peter Charlton, global head of corporate at Clifford Chance, the biggest money-making lawyer in the world – and he wants to make more, he tells Business Money.
“Our strategy is to grow our corporate/M&A revenue,” he says. “We would like it to account for about 30% of our business globally.” The biggest part of any corporate finance practice is often mergers and acquisitions, and that is definitely true of Clifford Chance. Last year it was ranked number one for worldwide M&A by Thomson Financial – advising on 444 deals globally, which were valued at a total of $490bn.

“In many ways the reputation of a law firm in M&A defines its reputation overall,” says Peter, “so it’s an important business to be in.” This thirst for more M&A business has been one of the drivers behind Clifford Chance’s global expansion, and although this accounts for it having a sizeable US arm, Peter accepts that a law firm does not have to have a physical US presence in order to do well in M&A, or in any other area of corporate finance.

“In the legal market, there are two trends: one is towards specialisation and niche, and the other is towards globalisation, and Clifford Chance has followed the latter,” he explains.

“We have gone from being mainly a UK firm in the 1970s and 80s, to where we are now, with 43% of our people in the UK and 57% outside. That’s across all our practices – in corporate/M&A we are even more internationally orientated, with perhaps a 40-60 split.” That 60% further divides into about 40% continental Europe, 10% US and 10% Asian.

The globalisation route has been taken, not for the sake of it, but because the firm believes it has “a competitive advantage by being able to offer a consistent service through an integrated network in key jurisdictions around the world”, he says.

Clifford Chance’s three US offices are in New York, easily the busiest, Washington DC and Silicon Valley. Does he think that many other UK solicitors – outside the magic circle – would benefit from having a US office?

“No, because mostly they have gone down the niche route, which tends to be local not global. But for global firms it makes a lot of sense to have a US office, and Clifford Chance has the biggest US presence by far of any non-US originated law firm.”

This strategy pays dividends because the US is the biggest legal market in the world, and the biggest M&A market. But Europe is almost as large, which means there is plenty of work at home for lawyers not wanting to break into the US in a major way.

Recent corporate transactions Clifford Chance has advised on in the US include Lenovo’s (the Chinese computer company) purchase of IBM’s US personal computer business, GE’s sale of its international insurance and reinsurance business to Swiss Re, and SL Green Realty Corporation’s $4bn acquisition of Reckson Associations Realty Corporation.

Norton Rose
Described in The Legal 500, 2005, as “one of the few credible non-magic circle corporate finance practices”, Norton Rose does a reasonable amount of US corporate finance work… and all without a US office. Instead, it employs a team of US-trained lawyers at its Camomile Street, London EC3 head office, and also in its European and Asian offices. It’s a strategy that works, explains Tom Vita, head of US corporate finance.

“Corporate finance is one of the two driving departments of the firm, along with banking, and we are the bigger driver in terms of numbers of partners and revenues generated,” says Tom. The UK accounts for about half the firm’s overall business, and it also has offices in France, Italy, China, Germany, Russia, Greece and elsewhere – but not the US.

Tom accepts that some of the big firms have acquired US law firms or are building up a presence on their own. “But others, like us, have adopted the strategy of having a US corporate finance capability in our non-US offices,” he says. “Rather than take on US firms head-to-head in their home market, we would rather work with a small number of preferred firms over there.

“That way, we get top quality advice from them in all the practice areas we want to service and it develops into a two-way referral relationship. Were we to have an office in New York it would be harder for us to do this. The fact that some UK firms are building up practices there has caused some US firms to work more with us because they don’t want to deal with UK firms that will also compete with them in the US.”

Norton Rose has worked on some big American deals. It did the English side of HSBC’s acquisition of Household Finance a few years ago. It also works with AIG, Disney, Middle Eastern private equity houses with US portfolio investments, UK banks offering structured products and it recently helped the US alternative energy company Protonex list on London’s Alternative Investment Market.

Denton Wilde Sapte
It is not necessary to have a team of US lawyers in London to win US corporate business, maintains Stephen McGlennan, a partner in Denton Wilde Sapte’s corporate finance group. Nor is US work a prerequisite for building up substantial corporate finance practices in the UK, Europe, Russia or the Middle East, as Denton Wilde Sapte has done.

“Corporate finance activities are important to us and to any City practice,” says Stephen. “There is a slightly broader base in this firm than you would find in other City practices because of our background, but our strategy is to focus more on corporate, along the line of other firms. We aim to double the size of our London corporate finance, in terms of income-generating partners, between 2005 and 2010.”

Stephen believes there is a broader base of clients that need corporate legal services these days. Banking has got more complex. Syndicated loans not only involve senior debt, but also mezzanine and equity instruments, which “brings into play the full range of corporate finance skills”, he says. Plus, there has been an explosion of AIM listed companies. “There are 1,500 more listed companies than there were 10 years ago.”

Virtually every job the firm does – whether in the UK, Europe or the Middle East – has an international element to it, and much of that is in the US. Most of Denton Wilde Sapte’s corporate work comes from where it has offices, but it acts for US giants Liberty Media and Microsoft, among others, and manages to do this without a US office.

“If you have a lot of commoditised work – such as acting for issuers in international equity offerings, as Linklaters and Clifford Chance do – then, it makes sense to have people in the US. But if you have a more diverse practice, as we do, it makes more sense for us to work with our clients’ US legal services providers as and when necessary.”

The US may be a huge market for UK solicitors. But it’s the world that is truly their oyster.

Michael Imeson is editor of Business Money International,
tel: 020 7224 8428, e-mail: mike@business-money.com

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