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Confusion over local M&A tables

Confusion over local M&A tables

DESPITE SOME discrepancy between the league tables as to what constitutes an “announced deal”, there’s a general consensus among the law firms that the year 2007 was a massive one…

DESPITE SOME discrepancy between the league tables as to what constitutes an “announced deal”, there’s a general consensus among the law firms that the year 2007 was a massive one for M&A activity in Australia.

Earlier this month both Thomson Financial and Bloomberg released their M&A legal advisory league tables for “announced” and “completed” deals for 2007.

For those who’ve been following the results for the past couple of years, it won’t come as a great surprise to see that Freehills has topped the Thomson table of “completed deals” with any Australia and New Zealand involvement by an impressive margin.

According to the Thomson tables, the firm last year claimed a 51 per cent share of the market with an overall deal value at over US$111 billion ($125 billion). As a comparison, this is almost double Freehills nearest rival — Allens Arthur Robinson — which claimed a 29 per cent market share with an overall value of US$62 billion ($70 billion).

Braddon Jolley, a partner in Freehills Sydney M&A team, attributed the firm’s success to the team’s experience in the field. “There’s no doubt that if you’ve done well one year than that helps the next year because clients like experience,” he said.

“They like to go to lawyers who’ve done it before and the more work you do, the more experience you get. But that said it’s still really competitive at the top. There would probably be around three firms at any one time who could knock you off the perch.”

The “announced deals” picture is less clear. Thomson’s Australia and New Zealand“announced deals” table shows Allens coming in at the top, with a market share of 57 per cent and an overall value of US$235 billion ($266 billion). Allens is followed by Blake Dawson and international firms Skadden, Arps, Slate Meagher & Floms and Slaughter & May. Freehills comes in only in fifth place with a US$94 billion ($107 billion) deal value and a market share of 23 per cent.

The corresponding Bloomberg table, however, has Freehills coming in first place with a 44 per cent market share and an overall value of $100 billion, with Allens coming in second at $51 billion.

This seemingly vast discrepancy can be explained by Thomson and Bloomberg’s different treatment of the proposed takeover of Rio Tinto by BHP Billiton, which if completed, will be far and away Australia’s largest value takeover.

According to Thomson, the proposed deal is worth around US$192 billion ($217 billion) — 12 times the value of 2007’s next largest deal, the acquisition of Coles by Wesfarmers.

Bloomberg have not included the proposed BHP/Rio Tinto takeover as an “announced deal” for the reason that while BHP has announced its interest in acquiring Rio Tinto, it has yet to make a formal offer. However, the proposed deal has been included by Thomson, meaning that the firms involved — Allens, Blakes, Skadden and Slaughters — have shot to the top of the Thomson table.

Jon Webster, a partner in Allens Melbourne M&A team, readily conceded the discrepancy. “It only takes one enormous transaction to throw these things around. You could actually conclude that Freehills would have won it if they’d been involved in the biggest deal of the year,” he said.

“If you take out the BHP/Rio Tinto deal [from the Thomson announced deals table] we would have come second to Freehills or further down the line. With some of the big ones it’s always a bit of a luck of the draw as to whether you’re involved or not.”

Whichever table you look at, it’s clear that 2007 was a huge year for M&A activity in Australia. According to the Thomson completed deals table, Freehills’ overall deal value went from around US$64 billion ($73 billion) in 2006 to US$111 billion ($126 billion) in 2007 — almost a 75 per cent increase. Allens moved from US$47 billion ($53 billion) in 2006 to US$63 billion ($70 billion) in 2007 — a 33 per cent increase. Other significant movers were Minter Ellison, who increased its overall deal value by around 330 per cent and Mallesons Stephen Jacques, who went up around 200 per cent.

Webster believes these substantial increases are the result of confidence in the market and the sheer size of the deals in 2007. “There were some incredible increases that were dependent on the size of some of the transactions. I think that’s what was different about last year — there were so many big deals,” he said.

Jolley agreed: “I think 2007 was a very strong year and that was across the board. I think the confidence in the market during the year — particularly at the beginning of the year — meant that people were prepared to do these bigger deals.”

To start with, during 2007 both Allens and Freehills were involved in two of the biggest deals in Australia’s corporate history — the $20 billion acquisition of Coles by Wesfarmers, and the $16 billion acquisition of Rinker by CEMEX.

Among other significant deals, Freehills was involved in Promina Group’s merger with Suncorp Metway, while Allens acted for Bendigo Bank in its acquisition of Adelaide Bank.

However with the threat of economic downturn in the US, Jolley is doubtful as to whether the heights reached in 2007 can be replicated in 2008. “I suspect that 2008 might be a little tougher. In January it’s probably a little early to tell but certainly if you look at what’s happening in the US you would have to wonder whether it’s going to put a dampener on the market in Australia. I think that you’d probably find that those big deals are less likely this year until confidence returns. I think in 2007 Australia came out very well,” he said.

“While what’s happened in the US debt market has affected Australia and there are a few examples of that, they’re isolated cases rather than a trend across the board,” Jolley said.

“What’s going to be interesting to see as the market comes down a little, is whether confidence remains or whether people start being a bit more conservative for a while until they see what’s going to happen globally.”

Webster is also hesitant to predict how 2008 will compare to 2007. “We’ve got a number of transactions in the mining and property sectors that clients are looking at now, so there’s a fair chance that we’ll continue at this level in the first quarter this year. But beyond that it’s anybody’s guess.” He argued that it will depend on whether the subprime crisis infects the real economy, with other factors.

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