Riding the global M&A wave

The torrid pace of mergers and acquisitions is producing a record year for Canadian legal advisers and the top performers have been those firms with strong ties to international deal makers and private equity funds.

The mergers and acquisitions community hasn't had it this good since the boom years of the 1980s when low-cost junk bonds financed a wave of takeovers.

This time around, deal makers say mergers and acquisitions are being fed by low interest rates and an insatiable appetite by private equity funds for new investments.

"I've never been so busy in my entire career," said Richard Clark, co-chairman of the M&A group at Stikeman Elliott LLP. "I see no sign of this slowing down at all."

The flow of deals has grown at a stunning rate. A survey by Thomson Financial of the first six months of the year show that M&A deals rocketed by 43 per cent to $1.27-trillion, compared with $885.4-billion during the same period last year.

The majority of these deals involved acquisitions of some of the world's largest energy, financial, technology, retail and real estate companies.

So many Canadian divisions or assets were swept up in these monster takeovers that domestic law firms catapulted to top rankings in Thomson Financial's global legal advisory tables.

During the first half of the year, Stikemans, Osler Hoskin & Harcourt LLP and Davies Ward Phillips & Vineberg LLP were ranked among the top M&A advisers in the world. Even though local law teams were typically not core advisers, they vaulted to top rankings because they were able to claim the full value of every deal in which they were involved.

"We are often the tail on these big dogs," said Stikemans' Mr. Clark. Stikemans latched on to so many "big dogs" this year that it jumped to 15th place worldwide in the first half of the year, advising on 41 announced deals valued at $91-billion (U.S.). During the same period a year earlier, Stikemans ranked 24th.

The biggest deal of the year so far was Procter & Gamble Co.'s $57-billion takeover of Gillette Co., which saw Oslers serving as Canadian counsel to P&G and Davies acting for the target. While P&G and a few global energy and financial companies launched the most expensive deals, the most active acquirers have been private equity funds.

Under time constraints to reinvest billion-dollar pools of capital, private equity funds created a new breed of acquirers by assembling teams of investors that outbid traditional strategic corporate buyers with record cash offers. With so many different funds hunting for takeover targets, lawyers say the pace and complexity of deal making is rapidly accelerating.

"It is unbelievable to me how quickly these deals are being put together," said Stikemans' Mr. Clark, who in February was given only days by an investment group led by Kohlberg Kravis Roberts & Co. to assess tax, competition and other legal issues involving the Canadian stores of Toys "R" Us Inc. Mr. Clark didn't find any deal stoppers and the KKR-led group succeeded a few weeks later with a $6.1-billion bid in March to buy the U.S. toy retailer.

With so many buyers and complex asset sales involved in private equity takeovers, typically a small army of lawyers is required to iron out all the legal wrinkles. Stikemans was one of six law firms retained by the KKR group to seal a deal that involved three different buyers and more than 1,500 stores around the world. It took eight firms, including Stikemans, to advise a group of equity funds led by Silver Lake Group to acquire SunGard Data Systems Inc. in March for $10.8-billion.

Winning legal mandates on these deals is not so much a matter of what you know, but who you know.

"Increasingly it is a world where the highest profile and most significant mandates are concentrated with a small number of U.S. and U.K. firms," said Clay Horner, co-chairman of Oslers. Only those Canadian firms that have established relationships with the premier global law firms will be included in the deal flow, Mr. Horner said.

Oslers, for example, owes much of its top international ranking to lucrative alliances with New York's Simpson Thacher & Bartlett and its competitor Sullivan & Cromwell, both of which were ranked among the top four firms globally and in the United States in the past year.

Craig Thorburn, a partner specializing in M&A with Blake Cassels & Graydon LLP, which ranked 4th on Canadian advisory tables, credits the Canadian firm's relationship with Europe's Linklaters & Alliance for its role in one of the year's biggest Canadian deals. Blakes' London-based managing partner David Glennie has previously worked on a number of transactions with Linklaters, a relationship Mr. Thorburn said helped win the firm an advisory mandate with Vodafone Group PLC on its $4.4-billion acquisition of Eastern European wireless assets from Montreal's Telesystem International Wireless Inc.

"When a company wants to do a transformational deal, it's critically important these days for them to hire a law firm with a proven international track record," he said.

M&A big leagues

Led by Stikeman Elliott LLP, which placed 15th, three Canadian law firms made the top 25 global rankings for the advisory role in mergers and acquisitions in the first half of 2005. The M&A market has been red hot, with intense competition between private equity groups helping to drive the flurry of activity.

Canadian M&A

Advisory rankings for firms in deals involving Canadian assets in the first six months of 2005.

Top deals

CORRECTION

Gary Girvan, Jonathan Grant and Frank DeLuca of McCarthy Tétrault LLP were lead legal advisers to Noranda Inc. during its merger with Falconbridge Ltd. Also advising Noranda was Borden Ladner Gervais. Oglivy Renault LLP was the lead adviser to O&Y Properties Corp. and O&Y Real Estate Investment Trust. Incorrect information appeared yesterday