As businesses batten down the hatches in tightening economic conditions, the mergers and acquisitions lawyers who have enjoyed a lucrative period brokering deals are facing increasingly tough times.
Major Australian law firms are freezing pay, and making redundancies. One even offered a financial incentive to its incoming intake of graduates to entice them to start later.
Challenging conditions have meant many firms, and the lawyers who work at them, have had to roll with the punches, doing things that in better times they wouldn’t have considered.
On the sidelines of a panel discussion yesterday one Sydney-based M&A lawyer with a major Australian firm told Business Insider their firm’s mergers division had taken to cold calling companies after they read about potential deals in media reports.
“They’ll wait for a journalist to publish with an article saying X CEO is thinking about acquiring Y company, and they’ll straight away call them,” the Lawyer said.
“They never used to do that.”
In the absence of big deals, this lawyer said now the firm was doing a lot of smaller jobs.
Where as a big deal with a listed company might make the firm around $200,000, the advisory services increasingly relied upon are bringing in around $5000 at a time.
“You’re not billing from morning until night any more,” the lawyer said.
Several colleagues were also evaluating whether they should branch out and practice in a different sector, as M&A showed no signs of picking up in the short-term.
“Fifty per cent of my clients are optimistic, fifty per cent are pessimistic. The optimistic ones are saying it will be a year, the are pessimistic are saying several years [until M&A picks up].”
A second M&A lawyer, also with a major firm based in Sydney, said for them it was all about volume of jobs now, even though small services in aggregate took a lot of time, and didn’t add up to enough in billings to replace the major buy-and-sell business they were replacing.
“There’s too many lawyers in Sydney and Melbourne,” he explained.
It’s also meant billing structures have changed, with even the big firms having to charge the corporate clients they service for value, rather than time spent on a job, which — put very simply — means you can’t necessarily throw a lot of graduates at the grunt work, and bill for all the hours they worked.
“We had one very large bank and we sat down and asked ‘how do you want us to bill’,” said Nick Humphrey, Partner & Head of Corporate, Sparke Helmore Lawyers, speaking at the event yesterday.
While the outlook for M & A legal practices, and the business sector as a whole will undoubtedly improve, panelists were divided on just how long it would take.
“I think next year it will be a little more of the same,” said Ashurst Australia partner Mark Stanbridge.
Clayton Utz partner Jonathan Algar was a little more upbeat, telling the audience: “I am optimistic we will be in a better place [this time next year]”.
Though, “Regardless of what sector you are in, deals are taking a long time,” he said.
“You need to be creative to get deals away.”
Financial Services Offering Some Opportunities
While there is no doubt it is a challenging environment, with few big deals on the horizon, financial services could be an area were M&A lawyers could see some light.
In a fragmented market, “larger players will seek to buy market share,” said Herbert Smith Freehills parter Peter Dunne.
Big overseas sovereign wealth funds such as the Ontario Teachers Fund – which has been snapping-up Australian infrastructure assets will also play more of a role, as they become more sophisticated, and increasingly seek make big investments without a middle-man.
“As a source of capital and of deals, I think all law firms are looking at how they capture the Ontario Teachers of the world,” Dunne said.
Australia’s own pension system, with more than a trillion dollars in assets, will also be a potential source of new deals, said Algar.
“It will be interesting how our own superannuation sector steps up to compete for shares of majority stakes [in assets],” he said. He also said a number of private equity exits also needed to happen in the near term.
The broader media sector, as well as warranty and indemnity insurance jobs would also be a source of work for M & A firms, Stanbridge said.
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