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?
January 30, 2006 9:39 AM
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