As M&A deal flows slowly – but surely – pick up and mega-transactions that defined the years past start to re-enter the pipeline, Asia’s in-house lawyers and business leaders tell ALB what they are looking for from their external counsel, in this important and expanding multi-billion-dollar practice area.
It seemed like only yesterday that it was near-impossible for one to talk about mergers and acquisitions work, without using adjectives such as ‘depressed,’ or ‘deflated,’ to describe the transactional landscape in the region.
Countless market analysts noted that global deal flows over the past 12 months have been at their lowest ebb for some time, with little prospect of business returning to ‘normal’ levels for the legal market any time soon.
However, even in the midst of this global turmoil, Asian M&A proved resilient. While there were no big-ticket deals being struck, transactional activity emanating out of China, Korea, Japan and India – to name just four jurisdictions – was at levels sufficient to give even the most pessimistic of market analysts some cause for hope.
This is hope that now seems justified, given the events over the past few months as an indication. Since Q2009, M&A deals have again begun to flow relatively freely in the marketplace.
Companies that were spurred on by, inter alia, more favourable conditions on global equity markets and improving confidence in the markets and economies, are now more willing to look at strategic acquisitions, both domestically and abroad. The same companies are also more willing to increase their market shares.
Banks seem to be more willing to provide finance. Ambitious capital raisings and activity on debt markets have left many of Asia’s largest conglomerates with the ability – and the hunger – to go after targets and deals which had been shelved since the onset of the financial crisis.
Those business transactions and deals are now re-entering the pipeline. And while India, China and countless jurisdictions in southeast Asia are noteworthy for their impressive outbound volumes, one shouldn’t think that this coalescence of factors heralds a return to the deal flows seen during 2007, or even early 2008 proportions.
However, it’s not as far-off reaching those levels as one would think either. A joint study published by Thomson Reuters and JPMorgan notes that this half of 2009 will become the bellwether for merger and acquisition levels for 2010. The report says this is when the real action will take place.
More favourable conditions and increased dealflow notwithstanding, new challenges now confront M&A practitioners across the region. In addition to ensuring that run-of-the-mill concerns are adequately addressed (document control is one example), issues such as anti-trust and competition also loom large on the horizon.
Regulators across the region are seeking to exert more control over the levels of international investment into and out of their respective countries. Consequently, if closing M&A deals in the midst of economic crisis was tough, then closing them in a rebounding market is set to be just as arduous for practitioners, if not more so.
TO ACCESS THE LIST OF THE LEADING LAW FIRMS AND LAWYERS, CLICK HERE.
Beyond document control
It should come as no surprise to learn that in the midst of economic crisis, what in-house lawyers demand of their external counsel has changed. Where the ‘hot’ markets of 2006 and 2007 witnessed parties jumping on transactions for fear of losing out on a big deal to a competitor, a much more deliberative approach is now required.
Regardless of whether the markets return to normality over the coming months in 2009, this is an approach that looks set to stay. More extensive due diligence, sounder document control, watertight MAC and force majuere clauses will all become features of closing deals.
There will also be more focus on deal structuring and regulatory analysis. These will become more entrenched features of closing deals in the future, according to our survey respondents. A return to the basics is a good thing, although in-house lawyers do realize that this may have a number of unintended consequences.
“Back-to-basics in dealmaking is good news, I feel,” says the corporate counsel at a China-based manufacturing company. “We realize that things like extending the lead time on deals, as well as fiddling with structuring and performing more due diligence are probably going to exert upward pressure on legal costs.”
“But to be honest, I don’t mind investing the money at the start of a deal rather at the end of a joint venture or acquisition gone bad.” Other survey respondents also agree with these sentiments, saying that, in addition, the innovative deal structures and novel methods to approaching deals – so often hatched during lean periods – should serve as blueprints for similar deals in the future.
The general counsel at an international investment bank explains. “When we go to someone on a deal we expect them to tap the relevant resources in their firm. If it turns out that another lawyer has worked on a similar deal, aspects of which – or research regarding [the deal] – can be applied to the current deal, then they should follow this lead. We don’t pay them to reinvent the deal.”
Performing legal work for a client that was not asked for is a classic example of the type of behavior that in-house lawyers don’t want to see from their external legal advisors. All parties involved recognise that closing the multi-billion dollar deals across the region requires a high-degree of ingenuity and analysis.
External lawyers, however, should always seek instructions before commencing work that falls beyond the scope of their original brief.
As the investment bank’s general counsel reinforces, “I really just want lawyers we use to do what we ask – nothing more, nothing less.”
“They shouldn’t do work we haven’t briefed them on – they should just provide the advice.”
TO ACCESS THE LIST OF THE LEADING LAWYERS, CLICK HERE.
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