The second-quarter mergers and acquisitions figures were a bittersweet pill for UK law firms. While the top five UK firms have maintained their dominant position in the global M&A advisory rankings, overall activity levels continued to free-fall during the second quarter.

On a global scale, M&A activity has plummeted in the past 12 months, reaching its lowest level since 2004. According to the latest figures from Thomson Reuters, total deal volume, at $US941 billion ($1210 billion), fell more than 40 per cent from the first six months of the previous year.

Linklaters advised on 99 announced deals globally in the first six months of 2009, worth $US229.6 billion; Skadden was second, advising on 68 deals worth $US192.9 billion, and Freshfields was third, with 104 deals at $US191.8 billion.

However, announced deals tallies don't tell the full story because there was an increase in the number of deals collapsing prior to fulfillment. Clifford Chance, Linklaters and Simpson Thacher & Bartlett were among firms to win roles in Rio Tinto's attempt to increase its stake in Chinese aluminum producer Chinalco, but the deal collapsed owing to shareholder opposition.

In Europe, Linklaters was top with 80 deals worth $US225.1 billion, followed by Freshfields with 76 deals worth $US149.7 billion, Sullivan & Cromwell (17 deals, $US79.8 billion) and Slaughter and May (26 deals, $US72.9 billion).

The total volume of European M&A was $US434.7 billion - a 42.7 per cent decline on the first half of 2008. Analysts have labelled it the steepest six-month decline ever.

Big ticket items

The top two deals were both in the mining sector (Rio Tinto/BHP, Anglo-American/Xtrata), followed by the UK Government's bail-out of Lloyds and RBS. Government investments during the first half of 2009 totalled $US140.4 billion, making up a record 45.3 per cent of M&A activity involving European targets and a 348.6 per cent increase over the $US31 billion in deal activity during the same period last year.

British publication The Lawyer has reported that clients are choosing to stick with the big firms in times of economic uncertainty. Backing up this theory, the figures indicate that transactions involving the top five made up 67 per cent of deal value for all firms in the top 25, compared with 37.9 per cent for the first half of 2007-08.

No end in sight

Despite the plunging M&A market, legalweek.com reported on 8 July that lawyers aren't yet ready to call the bottom of the European market. Herbert Smith corporate head Michael Walter was quoted as predicting more turmoil in the next six months.

"It is going to be patchy for six months or so. A best-guess from commentators, and one that I agree with, is that it will start to come back in either Q4 2009 or even Q1 2010."

CMS Cameron McKenna managing partner Duncan Weston was also sanguine.

"There is not a lot of M&A going on at the moment and we are looking at challenging times over the summer. There will be activity, but people will have to be alert to get it," he said.