State of the market

Law firms have observed major changes since ALB last published its Private Equity (PE) guide in 2007. Billion-dollar deals are now in hiding and most of the sizable transactions for the last financial year occurred in 2007, including the CVC Asia Pacific-PBL assets acquisition (A$4.96bn), GTCR-3M acquisition (A$2.4bn), CVC Asia Pacific- DCA Group buyout (A$2.45bn) and the Newbridge Capital-Myer acquisition (A$1.3bn).

Baker & McKenzie's Mark McNamara agrees that the days of high leverage and strong economic growth rates delivering more than 25% returns are "well and truly gone". He is, however, optimistic that the long-term outlook for PE activity is positive. "There have been decent levels of mid-range PE activity. Combine this with lower valuations, many more motivated sellers, more risk-averse buyers and general uncertainty regarding the business outlook, and the investment horizon looks prospective for private equity," he says.

Mallesons Stephen Jaques partner Peter Cook says that while private equity companies are not as active in corporate takeovers this year, they are still looking for assets. The firm acted on the CVC Asia Pacific-PBL Media acquisition and Chinalco's stake acquisition in Rio Tinto. "Clearly it has been quite a difficult year in the PE space. With debt almost completely drying up and pressure on existing portfolio investments caused by the financial tsunami and the general downturn in consumer confidence, the focus has not been on new deals. However, with the significant general asset devaluation occurring I would expect to see more deal volumes in 2009," he said.

While most firms have experienced a slow-down in the large-end private equity work for most of the year, some firms focusing on the mid-market have enjoyed a steady work flow. Deacons partner Nick Humphrey  says he has enjoyed a "strong calendar year", working on about  25 PE deals that ranged between A$20m and A$150m, including new MBOs, roll-ups and portfolio follow-on investments. "The mid-market has been more insulated from the credit crunch, as the relative debt required is less and acquisition multiples are smaller. While our practice does relatively smaller deal values, we have higher deal volumes," he says.

In the lead-up to Christmas some clients have delayed acquisition plans for another six months when prices and expectations are expected to be lower, according to Humphrey. Others, however, have adopted a fresh, innovative approach. "Clients are now buying targets using 100% equity or gaining a strategic foothold via the acquisition of distressed debt. We see funds, or their portfolio companies, buying businesses for their asset value and, generally speaking, dealing with distressed buyers and financiers is more challenging than simply buying businesses using leverage at higher multiples," he says.

He gives the example of the Rubicor roll-up (A$110m), in the recruitment sector and the roll-up of Total Eden-McCracken by AMP Capital and on-sale to Alesco (A$250m), pointing to how they used equity as a form of consideration instead of pure debt. "We see distressed buyouts and distressed debt, or 'loan to own', as key drivers of work in the future. A number of funds such as Helmsman Capital, AMP Capital, Goldman Sachs, JBWere and Allegro Capital (which recently acquired the ABN AMRO portfolio) also see distressed transactions as part of their core strategy for the next 12 months," says Humphrey.

Most of 2007 saw a number of major deals in New Zealand, says Kensington Swan partner Peter Missingham. He points to the Ironbridge-Canwest Mediaworks acquisition (NZ$750m), CCMP Asia-Yellow Pages acquisition (NZ$2.24bn) and Pacific Equity Partners/CCMP Capital-Independent Liquor acquisition (NZ$1.4bn). "I don't think we will see the big end of town coming back for at least a year. It would be way too hard for that ... we also saw the failed attempt by the Canadian Pension Plan's investment board to buy New Zealand Airport (NZ$1.4bn)," said Missingham.

Over the past 12 months, large Kiwi LBO sale mandates were attracting a large amount of PE attention from Australia, but interest has diminished with some shifting equity from larger deals to smaller, less risky deals in Australia. Kensington Swan partner Neil Millar points to how NZVCA statistics for the first half of 2008 indicated that PE was "pretty bleak". "NZVCA reported only NZ$64m of NZ mid-market PE investment spread across 6-8 deals. In the same period there were no reported LBO investments. Since then direct capital has done some significant investment and other existing domestic PE firms have concentrated on two things: quality smaller deals and tidying up existing portfolios," he said.

Although it has not been a smooth trip, Millar believes Kiwi mid-market assets could attract more cross-border PE activity. "There are some real opportunities for Australian PE funds to come over for that mid-market. Deals are relatively uncontested and one of the main Kiwi players (ANZ Capital) is exiting the Kiwi and Aussie markets. Fundraising for PE firms will obviously become harder in 2009 with funds of funds likely only to back PE firms with proven track records. There are only a handful of these firms in NZ - certainly not enough to cover all the opportunities - that's where Aussie PE can come in," he said.

Mallesons partner Mike Barker says firms are currently focusing more on the quality of management teams, and having a deeper understanding of a client's business model and strategy. "They also see the need to have discipline around when to say 'no' to investment opportunities as what will distinguish the quality PE managers," he added.

Australian PE deals ranging from A$100m to A$500m have picked up and in the fourth quarter of 2008, PE deals were bouyant, owing to interest from offshore PE parties. The reported 4Q year-on-year growth was 96%, according to figures recently released by Thomson Reuters.

McNamara expects PE to show structural flexibility, with smaller deals, higher equity contributions, lower leverage and increased use of mezzanine finance. Humphrey, on the other hand, says many of his clients expect the market to remain slow until 2010, so now is the time to keep portfolios alive and profit from distressed buyouts before the upswing.

SYDNEY

Sydney lawyers have captured the overwhelming majority of PE deals, which included acquisitions, take privates and venture capital funds. Clients noted that while top-tier firms were still the leaders, mid-tier firms were increasingly chosen. As usual, most clients felt that firms could lower partner hourly fees that weretypically ranged between A$580-600.

Gilbert + Tobin was good for the venture capital matters and reasonable in its timing. John Williamson-Noble was very professional, commercial, quick to respond and addressed client needs. Adam Laura was enthusiastic, hardworking, strong in technical aspects and had a "clean style" in his documents. Deborah Johns was quick, responsive and intelligent, and understood her clients. Andrew Bullock was a team player and kept a good relationship with financial clients. Bill Spain was very experienced and well-tempered.

Thomson Playford Cutlers was very commercial, happy to put in the hours and delivered more than expected. David Zwi handled difficult transactions, could "herd" several lawyers together and did an "incredible job". His bright, clever and effective people skills made clients turn to him time and again. Dan Kramer was practical, personable and provided good technical knowledge.

Henry Davis York was able to match its clients' culture, provide familiar models and commercial insight, and charge fairly. Glenn Hughes was very personable, an effective communicator, technically proficient, provided knowledge without fail and was able to manage both commerciality and legality. Christina Seppelt was good for complex matters, thorough and contactable.

Johnson Winter & Slattery has picked up a fair share of PE work. Damian Reichel was considered the "main PE expert" and pragmatic, sensible, responsive and "smart". Tim Bowley paid close attention to detail, was creative in finding solutions and highly committed.

Middletons also had its 'shining stars'. Russell Lyons was competent and tenacious; Ben Burney was commercial in his approach, while Rowan McDonald was another singled out.

Dibbs Abbott Stillman left clients with positive experiences. Rob Sauer, Geoff Cairns and John Reen were all pleasant and commercial but not "excessively legal".

Maddocks received positive feedback. Peter Shaw was commercial and practical in structuring PE transactions, while Sean Rush was a "financing guru" with large-firm experience.

Corrs Chambers Westgarth was increasingly chosen by clients, because it understood their needs. Richard Lewis's client service skills pleased clients. James Rosza was client-service orientated and also responsive.

Holding Redlich similarly received positive feedback. Darren Pereira was "very good" and did a "nice job".

HWL Ebsworth was favoured for less complex PE-related documentation. Alex Koroknay had many years of experience and was thorough in his work.

Swaab Attorneys was very proficient in the PE process. Alistair Jaque was systematised and compliance-driven to fast-track documents.

Mallesons Stephen Jaques was as "good as clients would get" in the Sydney market and gave an "excellent" level of service from partner down. Michael Barker was measured in his approach, pragmatic, interacted well with team members, "did not get caught up in a ditch of irrelevancies", had a good manner but was not overly emotive. Peter Cook was the "PE king", professional, hardworking, assembled a good team and took control of large transactions. Yuen-Yee Cho was regarded as "one of the three best" lawyers in leveraged acquisition project finance and her response times were "excellent". David Storr was competent and very good at technical aspects, while Dominic Bortoluzzi was very capable, met deadlines and good at preparing documents.

Baker & McKenzie had a "solid" corporate practice with a good skill set. Mark McNamara was considered to have practised since the "beginning of PE", knew all the structuring techniques, what was "doable", paid close attention to detail, was very responsive, "laid-back" and easy to get along with. Brendan Wykes produced concise documents, was diligent in following-up, pleasant to deal with, knew what he was doing, a good lateral thinker and coordinator, and commercial and realistic in his approach to difficult matters.

Minter Ellison worked very well on a range of PE matters, was thorough, helpful and responsive, and charged reasonably. Callen O'Brien was a very "strong" practitioner, commercial, not excessively legalistic and steered clients away from trouble. Nathan Cale was very "switched on", good at referrals, proactive and added extra value. John Mosely was a smooth operator, good at managing, practical and ensured everything was completed within a good turnaround time. Martin Bennett produced "exceptional" work, was a "specialist", good at referrals, methodical, diligent, responsive and calm under pressure.

Deacons took on a "massive" workload, but gave its clients comfort and left them with "no reason to turn to anyone else". Nicholas Humphrey had good commercial acumen, did not get "bogged down" in the finer details, broke through deadlocks, separated commercial issues from legal-wording ones and saved clients a significant amount of time. Martin Przybylski was pleasant to talk to, direct in his approach, had a good understanding of the Asian markets and required minimal instruction.

Clayton Utz was very active in the PE space and considered responsive, knew its clients well and was "very capable of driving" deals. Philip Kapp had a reputation as "one of the most experienced deal guys" and was very commercial and active. Michael Riches was "fabulous" in how he thought out commercial issues, was a proactive manager and ensured all relevant issues were properly addressed. Geoff Geha and Angela Flannery had depth of expertise and understood the "PE dynamic", Grant Koch was a "rising star", extremely capable and very competent and commercial, while Greg James was very experienced and "level-headed". David Stammers and Jonathan Donald were also mentioned.

Blake Dawson acted on some PE deals, particularly for borrowers for the PE houses. Steve Smith was a "young shining star" with a good ability to harness staff. He was approachable, practical and made clients feel they are "gold-star".

Freehills was considered very good in the PE space. Peter Dunne was professional, "knew what he was doing" and left clients with a good experience. Mark Crean was commercial, hardworking and "willing to be involved in all aspects, even though he was a partner". Damien Hazard was smart, achieved a quick turnaround and was "very efficient". David Templeman was also capable and efficient. Al Donald was very experienced in PE with sound judgement.

Allens Arthur Robinson handled its own fair share of PE matters and was good on the financing side of things. Tom Highnam, Phillip Cornwell, Richard Gordon and Stuart Weir were said to excel.

MELBOURNE

Melbourne firms have also received a significant volume of PE work, ranging from financing and simple asset sales to major acquisitions.

Holding Redlich was "outstanding", very responsive, competent, charged competitively and looked after its client interests. There were no incidents of the firm providing contradictory advice and partners managed to finalise deals without "getting bogged down in last-minute pick-ups". Michael Linehan was approachable and helpful, looked after the matter at hand and also provided other parties with a good business opportunity. One client playfully described him as a "workaholic" and "incredibly astute" with good credentials.

Maddocks was chosen for its ability to handle fund management aspects of PE deals. Jonathan Ambler was commercial and practical in structuring PE and transactions, with Shahriar Mofakhami good at cross-border and domestic tax matters.

Middletons was a favoured choice. Andrew Gaffney paid good attention to detail and resolved "difficult" legal issues. John Mann was also singled out for praise.

Bakers was considered for its experience and commercial approach. Ashley Poke was commended for his good combination of quality legal advice with a "good read" on commercial aspects of deals. "Rising star" Craig Andrade was favoured by clients because he was proactive, enthusiastic, capable, competent and commercial.

Blakes' Elspeth Arnold was praised for being "eight out of 10", with "outstanding" communication and client service. Tiffany Barton was efficient, proactive, good with PE and easy to deal with.

Freehills' Nick Wormald was looked upon kindly for promptness, focusing on commercial value points and not arguing "for the sake of it". Kon Nellos was very knowledgeable of the PE industry and the fundraising aspects involved.

Corrs' Jeremy McCarthy was commercial in his approach, without being too legalistic, while Simon Morris was a good technical lawyer, capable, competent and also "unassuming".

BRISBANE

Traditionally following on from the other - larger -capital cities, Brisbane has received its fair share of PE.

McCullough Robertson was the main firm that handled PE matters and Brett Heading was thorough, knew the PE market and what he was doing.

Corrs' Stephanie Daveson and Teresa Handicott were tenacious, good in the PE markets, had a good reputation and were good negotiators.

ADELAIDE

Although PE transactions in Adelaide would typically use legal expertise from Melbourne, there were a couple of firms that managed to pick up some work.

Watsons Lawyers was professional and clients considered it more responsive than some larger firms. Peter Watson's wealth of experience gained from working at both larger firms and his own firm won clients time and again. Lucy Gauvin was extremely committed to her clients, achieved results and was a "fine lawyer with a strong commercial sense".

Minters was professional, assisted clients throughout the PE process and left them with no reason to fault their commitment. Gerry Cawson was responsive and hardworking, and understood his clients and their timing needs. He performed well even during intense periods that required an "enormous" amount of work.

NORTHERN TERRITORY

Last year's PE boom reached even the Australian outback. CridlandsMB Lawyers' Richard Giles was a "highly respected leading practitioner" and an all-round "great bloke".

Collier & Deane's Michael Deane was efficient and had good contacts, and also a "no-nonsense" and "minimum-fuss" approach. Nadine Collier was efficient with solid experience.

Minters was considered to have lawyers of high calibre.

Clayton Utz was also mentioned.

NEW ZEALAND

Some clients commented that Kiwi firms could have charged a "wee bit" less than the typical hourly rate, which ranges between NZ$500-550.

Chapman Tripp was considered a "premium law firm", performed to a high standard and formed a "close-working" partnership. John Strowger and Shelley Hodge understood what clients wanted to achieve, the best way to go about it and delivered to a consistent standard. Andrew Poole was direct and resilient, and had a "great radar" for spotting things and prioritising. Derek Parker was also singled out for praise.

Minter Ellison Rudd Watts was considered excellent with few issues, thorough, committed, able to assess legal risks and provided good value for money. Cathy Quinn was multi-skilled, frank, good at debating, commercial and sensible, with a good understanding of PE.

Buddle Findlay left clients feeling pleased with their work. Simon Vodanavich was "impressive" in his advice, "unique" in how he handled PE, commercially savvy and "cut through the crap". Sarah Roberts had a good understanding of PE and how to put structures in place.

Kensington Swan was responsive, helpful, timely, effective, reasonable and its clients were happy to consult them, as there were no major issues. Peter Missingham performed admirably and pleased clients, while Peter Speakman was responsive.

Simpson Grierson has done a considerable amount of venture capital work, among others. Shelley Cave was commercial, had a good understanding of regulations and had a hardworking ethic.

Bell Gully handled "large workloads", while tending to finer details. David Flacks and David McPherson were very responsive. Clients trusted them and felt reassured they would deliver. James Gibson and Anna Buchly were quick, highly responsive, proactive, commercial and easy to deal with, and did not try to "grandstand" with the other party.

Quigg Partners was considered to be a good boutique firm. David Quigg was very personable, "daring" and a "bit of an 'old-school' lawyer" with a good network of contacts.

Anthony Harper's Paul Hartland was very experienced, commercial, understood his clients and was able to deliver and pull things together.

Russell McVeagh was looked upon fondly. Pip Greenwood was praised,

Morrison Kent was reasonably priced and Andrew Stewart was favoured for his pragmatic approach.

LeeSalmonLong's Greg Lee was also mentioned.

2007/08 DEALS IN BRIEF

1. CVC ASIA PACIFIC PBL ACQUISITION

Value: A$4.96bn

Firm: Mallesons Stephen Jaques
Lead lawyer: Peter Cook, Greg Golding, Jason Watts
Client: CVC Asia Pacific, UBS

Firm: Baker & McKenzie
Lead lawyer: Mark McNamara
Client: KKR

Firm: Allens Arthur Robinson
Lead lawyer: Robert Simkiss
Client: Newbridge Capital

Firm: Gilbert + Tobin
Lead lawyer: Andrew Bullock
Client: PBL

• PBL hived off half its key media assets, including Nine Network and ACP Magazines into a new company then sold 50% to European-owned private equity group (PE) CVC
• Largest PE transaction undertaken in Australia at the time
• Innovatively structured deal completed in under six weeks; involved complex interplay of regulatory, media law and corporate expertise

2. IRONBRIDGE-ARCHER 3M ACQUISITION

Value: A$2.4bn

Firm: Cleary Gottlieb
Client: 3M

Firm: Clayton Utz
Lead lawyer: David Stammers, Philip Kapp
Client: Archer Capital, Ironbridge Capital

Firm: Hogan & Hartson 
Client: Graceway Pharmaceuticals

Firm: Kirkland & Ellis
Client: GTCR

Firm: Wiggin & Dana  
Client: Meda AB

• Archer Capital and Ironbridge  Capital acquired 3M Pharmaceuticals Business in Asia Pacific and Africa
• Deal was subject to Foreign  Investment Review Board approval at the time
• Business was to remain headquartered in Sydney

3. CVC ASIA PACIFIC-DCA GROUP ACQUISITION

Value: A$2.7bn

Firm: Blake Dawson
Lead lawyer: Mark Stanbridge
Client: CVC Asia Pacific

Firm: Freehills
Lead lawyer: Leon Pasternak
Client: DCA Group

• Successful acquisition of DCA was largest 'public to private' private equity transaction in Australia at the time
• Offer was made by scheme of arrangement and funded by a mix of debt and equity provided by funds managed
• DCA shares were acquired through company CAID established by CVC
• Blake Dawson has done eight major schemes completed in the Australian market over the past two years

4. PEP-MERRILL LYNCH VEDA ADVANTAGE ACQUISITION

Value: A$814m

Firm: Minter Ellison
Lead lawyer: John Mosely
Client: Merrill Lynch, UBS

Firm: Baker & McKenzie
Lead lawyer: Brendan Wykes, Bryan Paisley
Client: Lynch Global Private Equity, Pacific Equity Partners

Firm: Mallesons Stephen Jaques
Lead lawyer: Jason Watts
Client: Veda Advantage

• Credit checking company Veda Advantage approved buyout offer from private equity consortium comprising Pacific Equity Partners and Merrill Lynch Global Private Equity
• Offer for all shares in Veda Advantage by way of scheme of arrangement
• Implementation of scheme is intended to take place in June but remains subject to, among other things, court and shareholder approval
• With rising profile on public to private deals, Bakers provided private equity specific advice and general regulatory advice, as well as advising on debt facility arrangements and acquisition structure

5. ARCHER CAPITAL-CELLARMASTER ACQUISITION

Value: A$208m

Firm: Corrs Chambers Westgarth
Lead lawyer: Christine Covington
Client: Carlton and United Breweries (Foster's)

Firm: Minter Ellison
Lead lawyer: John Mosely, Martin Bennett, Kate Lane
Client: Bank of Scotland, Royal Bank of Scotland

Firm: Baker & McKenzie
Lead lawyer: Brendan Wykes, Bryan Paisley
Client: Archer Capital

Firm: Bell Gully
Lead lawyer: Bridgette Castle, Anna Buchly
Client: Archer Capital

Firm: Chapman Tripp
Lead lawyer: Rob Parker
Client: Foster's

Firm: Quigg Partners
Lead lawyer: David Quigg
Client: Foster's

• Archer Capital acquired Cellarmaster Wines and Vinpac International in Australia, Cardmember Wines and Carters in New Zealand and an interest in Wine Buzz in Japan from Foster's Group
• Deal represents completion of Foster's transformation from diversified portfolio of businesses to integrated global drinks producer
• BOS International (Australia) and Royal Bank of Scotland provided A$175m of senior and subordinated acquisition facilities, ongoing working capital facilities, and acquisition and restructuring facilities
• Cellarmasters is Australia's largest merchant of home-delivered wines, and Vinpac is a contract bottling business in SA's Barossa Valley
• New Zealand acquisitions are wine club with 75,000 members (Cardmember Wines) and bottles and cork distribution business (Carters)

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