JUVE Law Firm of the year

M&A

German transaction lawyers in high spirits

The M&A market has not been this active in a long time. Large cross-border transactions such as Peugeot’s takeover of Opel and the planned merger of the Frankfurt and London stock exchanges returned. And unlike in the golden age of M&A in 2007, this time it is not a mere bubble. Rather, it is an expression of the remarkable strength of German industry and, after Brexit, the fact that Continental Europe and its biggest economy have become a highly attractive investment location. At the same time, German companies are investing abroad. Bayer, Evonik, Lanxess and BASF all took steps toward expansion.

German M&A partners increasingly steering international deals

To an extent never before seen, German lawyers have been acting on major transactions abroad which have little or nothing to do with German law. Only a few years ago, German lawyers working on major transactions in Latin America or Southeast Asia, such as Lazada’s sale to Alibaba, would have been an anomaly. Nowadays it is becoming an important part of the practice of the leading firms. Industry expertise, transactions experience and the role as trusted advisor allow these lawyers to be active internationally. The question marks over the role of London – and thus UK lawyers – has only improved the saleability of German lawyers.

To a certain degree, the decreasing importance of investment banks’ advisory practices has created greater scope. Whereas they used to be involved in all of the major M&A deals, lawyers report nowadays that because in-house M&A teams have much more expertise than in previous years, many deals now happen without banks’ input. Many investment bankers are now also active in industry or for private equity houses.

Both developments mean that the role of the external adviser, whose intimate knowledge of a company and sector enables them to assess the risks of a deal, is changing. The role of premier advisors is now just as likely to be taken by lawyers. Their job may be slightly different to that of the investment banker – and certainly not as well paid – but they complement the work of the in-house M&A teams at large companies.

New job profile

Not only M&A lawyers are sought-after risk consultants. Because the issue of risk has grown in importance, so has the importance of broad advice from highly specialized and experienced legal advisors. Precisely in transactions, the way risk is regarded is constantly changing: out of fear of damaging their reputations, financial investors now want their investments checked more thoroughly, with issues such as human rights and environmental protection beginning to come to the fore.

Even political risks, such as the debate surrounding the Kuka sale and the US presidential takeover ban in the Aixtron case, are stacking up within the global economy and are taking on a legal element: experience at the interface with regulatory law and other fields related to politics is in demand – and becoming more expensive.

Interplay between corporate and M&A expertise

These developments are influencing the structure of deals. Target companies now receive a new corporate and tax structure in advance. Many firms used to differentiate more strongly between corporate and M&A but now most see it as a competitive advantage to have both united in one lawyer. The review of legal issues which may impact value, such as antitrust, embargo violations or stricter export checks in Germany and other countries, is undertaken much sooner.

On the one hand, this means transaction firms can involve more lawyers in advice. On the other hand, this decoupling of seemingly peripheral aspects of a deal prevents firms that are not primarily active in M&A from getting involved via other specialties.

Talk among M&A lawyers over the past few years has been dominated by the standardization and commoditization of their discipline. In many firms, the M&A practice is considered to be the motor of business. US and British outfits rely on transaction work when entering the German market and tend to invest heavily in establishing these practices. This over-supply of M&A lawyers stands opposite not only standardization, but also the cost sensitivity of clients, increasingly professional in-house M&A teams and the use of technology to streamline the transaction process (not only in due diligence). These have all led to a stagnation (if not a fall) in prices. So much so that at many firms, M&A practices have either faced cutbacks or have not grown at all.

High hopes

Given the buoyancy of the German market it is not surprising that firms are investing in transactional lawyers. For the most part, it is US firms which are taking the opportunity of investing in lateral hires in the hopes of winning a slice of the German M&A market. The Chicago-based firm Sidley Austin reopened in Munich in 2016 after having closed its Frankfurt outpost in 2014. The firm brought in a team from Kirkland & Ellis, primarily consisting of M&A lawyers.

Latham & Watkins made major moves in the M&A market, which, given the firm’s success after former Linklaters partner Dr. Rainer Traugott joined the Munich office, is not surprising. But the arrival of Dr. Nikolaos Paschos, one of the stars of the Linklaters’ M&A practice, was still a major coup: he is equally at home in law of corporations and transactions. The dissolution of the German practice of Asian-Australian firm King & Wood Mallesons provided other firms with experienced partners with a ready-made practice.

Power relationships between firms remains constant

For the most part, the high level of activity in the market has meant that with all firms having plenty to do, there has not been much of a shift of power. Freshfields Bruckhaus Deringer, Linklaters and Hengeler Mueller continue to be the undisputed leaders, even though they are all developing in different fashions. Freshfields has long since reduced its corporate partnership and they are focused solely on high value transactions for clients across Europe, while Hengeler remains a much broader practice with a high level of inbound work. Linklaters for its part focuses on German industrial clients to a greater extent than Freshfields but with a smaller and more focused team than Hengeler.

Ten years ago most observers saw Clifford Chance as being on the same or very close to the level of these leading firms, but the past years have been tempestuous, including a period of restructuring with changes made to management and the partnership. The past year has seen the fruits of that reshaping to an extent that, together with Gleiss Lutz, Clifford is challenging the top firms again. The emphasis of the practice is now less on private equity than in previous years: a more balanced team is the result.

 

The firms in this chapter are those which are active in legal advice as well as project and transaction management during the acquisition of company assets (known as asset deals) and shares (known as share deals involving either minority or majority shares). Although the meaning of M&A includes mergers, a large number of lawyers active in this area expect such mergers to be part of pure ?corporate. Acquisition advice for private equity houses is discussed in the chapter ?private equity and venture capital.


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