The forced obsolescence of Macfarlanes and Travers Smith as City-focused M&A teams has been as long predicted as it has failed to materialise. Since 2010, after both firms quickly recovered from a brutal post-Lehman shock, the pair have proved not just resilient but able to thrive.
The pair performed robustly again in 2014/15, with Macfarlanes having been one of the most successful top-100 firms over the last five years with organic revenue growth of 73%. Around 20% of revenue is generated by its corporate department, reflecting the size of its private client practice and a concerted push to broaden its disputes, regulatory and finance teams.
Travers Smith, meanwhile, saw record results, with a 9% rise in revenue, breaking the £100m boundary, while profit per equity partner (PEP) was up 8% to £947,000. Those results also mark back-to-back growth at the 300-lawyer firm, with double-digit percentage increases in revenue and PEP recorded in the 2013/14 financial year.
Such results stem in part from the firms’ traditional strengths in private equity and corporate, though unlike Travers, Macfarlanes has shifted away from a heavy focus on buyout clients in favour of a wider plc and funds push.
Macfarlanes secured the Legal Business Corporate Team of the Year 2015 award for its work on the mammoth acquisition by Verizon Communications of a 45% stake in Verizon Wireless, held by Vodafone, for $130bn. Working alongside Wall Street leader Wachtell, Lipton, Rosen & Katz, Macfarlanes corporate partner Graham Gibb led a team in what constituted the third-largest M&A transaction ever and involved the largest bond issue of all time, with the $60bn stock consideration paid by Verizon involving one of the largest admissions to the London Stock Exchange.
Travers, meanwhile, has kept its focus firmly on private equity, carving out a place as the City’s top upper-mid-market house. The firm advised on over £6.8bn of private equity-backed transactions during 2014/15 and says it was instructed on almost 40% of private equity transactions over £100m. Its trophy deal for 2014 was advising Cath Kidston and its shareholders, TA Associates, on an investment by Baring Private Equity Asia (BPEA). Led by private equity head Paul Dolman, the transaction, which valued the British design brand at around £250m, allowed TA Associates and other investors to retain some of their holdings with BPEA. Though the firm did see the recent departure of its former head of private equity Philip Sanderson to Ropes & Gray, Travers has in general bucked the trend over the last five years for City buyout teams to lose ground and key partners to US rivals.
Macfarlanes M&A head Ian Martin comments on the approach: ‘[Macfarlanes and Travers] work with what I consider the “quality” international model as opposed to the “branded” international model. The quality independent international model relies on lawyers partnering to lead a deal with a real sense of co-ownership. Being part of something where they can make a difference by collaborating closely. That resonates with many general counsel.’
The firms look well poised to capture the continued uptick in transactional work, having this summer demonstrated a busy pipeline of deal flow. July started the third quarter with the highest ever value of M&A transactions announced in any July since 2007, with deals valued at $410bn – 49% higher than July 2014.
And with US firms increasingly making their mark in the City, Travers senior partner Chris Hale argues there is an enduring place for smaller London firms, providing they renew themselves. ‘You always have to be imaginative in doing deals. Deals have the same basic characteristics however you cut them. It usually has half a dozen key points which clients will want to know how to handle and will expect lawyers to be responsive and to co-ordinate multiple parties and numerous documents effectively. If a law firm scores well on all those markers there is a good chance it will do well. Legal technology is changing slowly, not dramatically, but will help lawyers to better perform aspects of M&A and that trend will continue.’
UK mid-market firms that continue to perform well include Osborne Clarke, which shows particular strength in the digital business space in corporate transactions on deals ranging between £50m and £250m.
Nabarro, which has enjoyed a revival in fortunes with an 8% revenue rise to £126m – its largest annual increase since 2008 – houses a 15-partner corporate team for mid-market deals, though the firm has been hit by its historic reliance on the volatile AIM market.
Taylor Wessing has likewise sustained a strong reputation in venture capital transactions and midweight deal work, as has Olswang, which has previously won mandates from clients including Warner Music Group, ITV and Sony Pictures.
None of which is to underestimate the challenge of sustaining a lucrative corporate practice for a firm apart from traditional London leaders. Two key areas of technology and private equity are seeing mounting focus from US entrants – notably with the audacious City launch this January of Cooley – and the sweep of US financing into even mid-market buyout work presents a challenge to such advisers. But for those that get the formula right, the mid-tier M&A teams have demonstrated a potent mix of quality, efficiency, responsiveness and partner ownership that makes a difference when you’re racing to close the deal.
sarah.downey@legalease.co.uk
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