Lawyers eye windfall from financial services mergers
Law firms seem to be rubbing their hands together amid increased consolidation in the financial services industry. Justin Whealing reports.
A panel of heavyweight lawyers believes the financial services sector offers the best possible path to a recovery in Australia’s tanking mergers and acquisitions (M&A) market.
Jonathan Algar, a partner at leading national law firm Clayton Utz, told a panel discussion at the Westin Hotel in Sydney recently that, with energy and resources work drying up, financial services was the one sector law firms were eyeing up to fill the gaps.
“When you look at the market this year, you have only six deals over $50 million, which compared to last year – which was a bad year – is a third of the volume from the same period,” he told over 200 lawyers, investment bankers and market analysts.
“Potentially, you have activity in financial services. I think you might see deals in that sector this year but, regardless of what sector you are in, what we are finding is that deals are very hard to do and they are taking an awfully long period of time.”
M&A teams at the large and mid-tier Australian firms have taken a massive hit due to lack-lustre local and global activity.
In the last six months, Algar’s Clayton Utz and global firms Ashurst and King & Wood Mallesons have laid off staff.
According to Mergermarket, M&A activity in the Asia-Pacific (excluding Japan) in Q1 2013 is 23 per cent below the same period in 2012.
Algar was joined on the panel by fellow senior law firm partners Mark Stanbridge from Ashurst, Peter Dunne from Herbert Smith Freehills and Nick Humphrey from Sparke Helmore.
The event was hosted by the global technology provider Intralinks. Matthew Porzio from Intralinks rounded out the panel.
All four lawyers relayed tales of deal woe throughout the discussion, with Dunne at one point quipping that “it is hard to fall off the cliff when you are already at the bottom of it”.
“The anxiety is that people feel the other shoe will drop,” said Dunne. “The last seven to eight months have probably been worse than ’09, and ’09 was pretty grim”.
Earlier in the discussion, Dunne said legislative changes were making financial services the industry that legal advisers were looking at most optimistically to provide work for the second half of the year.
“As advisers, it is easy for things to fall over at the moment,” he said. “What are the things that will drive particular growth in certain areas; financial services will be a big uptick,” he said, adding that “then you have the superannuation increase where money will funnel in”, referring to the Government’s decision to gradually increase the Superannuation Guarantee rate from 9 per cent to 12 per cent.
Time’s ticking for hourly billing
While the panel focused on the lack of deals activity in many sectors, a highlight of the discussion came when the topic of alternate fee arrangements (AFAs) was raised.
Nick Humphrey, the head of the corporate group at Sparke Helmore and the former head of private equity at Norton Rose, told the audience that the billable hour is dead in the water.
“The old way of ‘here is my hourly rate of $1000 an hour, times the number of hours and the big team I put on it’ – those days are gone,” he said.
Humphrey was far more bullish than his legal counterparts when talking about AFAs.
He revealed that 70 to 80 per cent of files in the corporate group at Sparke Helmore now have a non-traditional fee arrangement structure – “whether it is fixed price, pendulum billing (swings in fees tied to success or failure on a deal) or even more revolutionary things like profit sharing, royalties, fees for equity”.
He said that by providing such alternatives to clients, his firm was gaining work in a tight transactional market.
“We sat down with one client and asked them, ‘well, how do you want us to bill?’, and they said, ‘you are the first law firm that has ever asked us that question’,” said Humphrey.
“I said, ‘great, don’t ask anyone else, let’s work together on some pilot projects’.
“We have; and we now have two very large pilot projects where we have billed in a fashion they have asked for, which is a combination of fixed-price billing with some safety valves.”
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