THE CORPORATE SCORECARD 2008

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Suddenly, Last Summer

Dealmaking in 2007 had a distinctly Jekyll-and-Hyde feel. Up to mid-summer, the deal environment was as crowded and frothy as the morning rush at a Times Square Starbucks. Private equity buyers were tapping a seemingly bottomless supply of credit to fuel a record volume of deals. But then, triggered by factors including the collapse of two huge hedge funds, the door to easy money slammed shut. Large leveraged deals made a sudden exit, and deal volume sank by nearly two-thirds.

Despite the topsy-turvy deal flow, there was little movement at the top of our league tables. Sullivan & Cromwell led in value of deals with at least one U.S. principal, posting 14 percent greater deal value than last year. Wach­tell, Lipton, Rosen & Katz rose to second, and Skadden, Arps, Slate, Meagher & Flom dropped to third, with a slight drop in deal value. But Skadden again ranked first in deal volume.

In our rankings of counsel to investment advisers by volume, the top three firms remained unchanged. Dewey Ballantine, now merged into Dewey & LeBoeuf, headed the list, with deal volume and value both up, as its long ties with such investment banks as Credit Suisse, UBS AG, and Lehman Brothers paid off. “Our work stayed pretty steady,” says Morton Pierce, Dewey’s M&A chair. Latham & Watkins and Sullivan & Cromwell once again stood at second and third, respectively.

But there was jostling just beneath the top three. With some of the largest deals of the year involving Canadian companies, Stikeman Elliott and Blake, Cassells & Graydon both made the top ten in deals for principals. Stikeman, which ranked sixth, was Canadian counsel to BCE Inc. in its buyout by a private equity consortium and to Alcoa Inc. in its acquisition with Rio Tinto Group of Alcan Inc., the first- and fourth-largest deals. And, also driven in part by the $46.8 billion BCE deal, Fried, Frank, Harris, Shriver & Jacobson and Weil, Gotshal & Manges both saw their rankings soar. Fried, Frank surged on work with longtime client Goldman Sachs & Co., Inc., the top-ranked financial adviser by value of deals. Meanwhile, Simpson Thacher & Bartlett, which was ranked eighth last year as counsel to investment advisers, and Mayer Brown, which was ranked tenth as counsel to principals, did not appear on this year’s list.

The second half of 2007 wasn’t all bad news. Getting from signing to close�or unwinding deals gone sour�kept many deal lawyers busy. And firms saw more strategic buyers and non�U.S. investors angling for American businesses, producing a more measured, smaller-cap deal flow at year’s end. But as the credit crisis continued to unfold in 2008, deal veterans saw top-tier M&A practices reaching further down to maintain their deal flow�leading to more competition for deal work at every tier. The slowdown, says Robert Schwenkel, Fried, Frank’s corporate chair, “is going to affect everybody, up and down.” – Julie Triedman

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A Deluge, Then a Drought

Despite the subprime mortgage woes and the credit crunch that struck Wall Street last summer, 2007 turned out to be a strong year for initial public offerings in the United States. In fact, deal volume for IPOs hit a seven-year high, rising to 234 offerings, compared to 198 in 2006, according to Renaissance Capital, which tracks IPOs. Total IPO proceeds for 2007 were $54 billion, compared with $43 billion in 2006.

Last year’s four largest IPOs were issued by financial institutions. Among them, the biggest and splashiest was that of The Blackstone Group L.P., which raised $4.1 billion in June. Rounding out the top four were IPOs of MF Global Ltd. ($2.9 billion), Interactive Brokers Group, Inc. ($1.2 billion), and Och-Ziff Capital Management Group ($1.2 billion).

But for the first time since 2004, technology was the industry with the most IPOs, Renaissance says. There were 52 tech IPOs, representing 26 percent of deal volume. VMware Inc., a spin-off from EMC Corporation, raised more than $1 billion, becoming the largest tech IPO since Google Inc.’s.

American issuances by foreign firms rose 62 percent in 2007, totaling 55 IPOs (in 2006, there were 34), notes Renaissance. Indian outsourcing firm Genpact Limited, a former subsidiary of General Electric Company, made its debut last year on the New York Stock Exchange. Though the IPO was comparatively small�just less than $600 million�Genpact is representative of the crop of foreign issuers in the United States. For companies aspiring to be global players, the U.S. is still the IPO venue of choice, says Cravath, Swaine & Moore partner Timothy Massad, who represented Genpact.

Though 2007 ended up being a good year for IPOs, few people are betting that 2008 will be more of the same. “Things are very slow right now,” says Vincent Pagano, a partner at Simpson Thatcher & Bartlett, noting the high number of IPOs that were pulled off the market in January. (Research firm Dealogic says that 17 IPOs were withdrawn in that month.) “The statistics were dramatic. The market is too uncertain for most IPOs to go forward,” says Pagano, adding that even a prestigious issuer like Blackstone would have trouble launching now. His advice? Hunker down and keep your ears to the ground. “No one,” he says, “really knows how long the uncertainty will last.” – Vivia Chen

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A Hot Streak, Fueled by Energy

Powered by a busy year in the energy sector and growth in the Middle East and Africa, global project finance reached new highs in deal volume and value last year. According to London’s Dealogic, which tracks global project finance activity, volume for project deals hit $273.3 billion from 656 projects, a 20 percent increase from 2006, when volume was $227.0 billion from 589 projects. This marks the fifth consecutive rec­ord year, but even 20 percent growth seems like a moderate gain compared to 27 percent growth in 2006 and the five-year average of 29 percent.

As a region, the Middle East and Africa saw the largest deal volume with $77.2 billion spread across 70 ventures. That included the world’s largest project last year, the $7.05 billion Abu Dhabi aluminum smelter project in the United Arab Emirates. Sullivan & Cromwell represented the developer Emirates Aluminium Company Limited, a joint venture of Mubadala Development Company and Dubai Aluminium Company Limited. Allen & Overy advised the joint venture on local UAE law, and White & Case represented the lenders. White & Case surged to second place in total deal value on the strength of the Abu Dhabi project and work for developers in three of the five largest deals in the world. It advised on $17.2 billion in deals that closed last year.

White & Case wasn’t the only firm with stateside roots that benefited from the activity in the Middle East and Africa. “There’s been a huge wealth effect in the region created as a result of soaring energy prices,” says Milbank, Tweed, Hadley & McCloy’s Eric Silverman. Milbank represented lenders in the $3.5 billion Marafiq Independent Water and Power Project in Jubail, Saudi Arabia, a financing that included a $600 million Islamic facility from regional lenders. With 50 deals closed in 2007, Milbank moved from number five to number two in deal volume, behind only Allen & Overy’s 68 deals.

Even with the tightening of the debt markets, project lawyers see a chance for energy deals to drive another record year in deal value, if not volume. “With the growing need for energy around the world�even with the current market environment�there’s a need to get these facilities up and running,” says Latham & Watkins partner Jonathan Rod. An inconvenient truth, perhaps�but also a business opportunity. – Ross Todd

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Crashing Down to Earth

If 2006 was nirvana for real estate investment trust (REIT) deals, 2007 was a cold hard slap of reality. After seven consecutive years of gains, REIT market capitalization contracted last year, according to the National Association of Real Estate Investment Trusts (NAREIT), a trade group. Returns on commercial REITs, which invest in office and retail properties, shrank 15 percent, while returns on mortgage REITs, which invest in mortgage-backed securities, plummeted by 42 percent.

The harsh market environment was reflected in our league tables. The number of REIT equity offerings handled by the firms on our charts dropped 35 percent, and the number of debt offerings slid 42 percent. Still, there were some deals to be had. “We did a few large convertible or exchangeable debt offerings where the [client] had rights to convert debt into stock,” says Michael Brody, global chair of the REIT practice group at Latham & Watkins, which topped our issuer’s-side REIT debt table for the third consecutive year.

Nonetheless, the last half of 2007 was so weak that it’s hard to remember that the year opened with The Blackstone Group L.P.’s stunning $38.1 billion acquisition of Equity Office Properties Trust. Then came the subprime crisis: Of the top 18 REIT mergers for 2007 listed by NAREIT, only one was announced after August 1.

One of the last big REIT deals to be announced before the credit collapse was the $21.7 billion acquisition of the Archstone-Smith Trust�the nation’s third-largest apartment REIT�by Lehman Brothers Holdings Inc. and Tishman Speyer Properties, L.P. The deal was the second-largest REIT M&A transaction ever and the biggest in the multifamily sector, says Hogan & Hartson chairman J. Warren Gorrell, Jr., who heads the firm’s REIT group. Gorrell, who advised Archstone on the purchase, says that despite the credit woes, the deal still closed on time in October with no price renegotiation.

With the market in the United States in a slump, many REIT lawyers are turning their attention overseas. Germany and the United Kingdom have passed laws authorizing REITs. That creates a buying opportunity for REITs in the U.S., Bernstein says. “Many U.S. REITs are looking at global acquisition opportunities,” he says, “and they’re going to need sophisticated counsel to guide them through the structural issues associated with international expansion.” – Brian Baxter

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