Small Law Firms Stay Under the M&A Radar
by Petra Pasternak
The Recorder, May 05, 2008
http://www.law.com/jsp/law/sfb/lawArticleSFB.jsp?id=900005561727

Even as the biggest merger and acquisition deals drop off a cliff, some M&A lawyers who work on deals of a more modest size report that, so far, they have been busier this year than last year. A few at very small firms have even been moved to hire more staff and attorneys.
Since January, Roger Royse, founder of the Palo Alto, Calif.-based Royse Law Firm, has brought on two legal assistants. He has hired an associate who starts in June to bring the firm to five lawyers. Royse says that with four M&A deals already signed and two more in the hopper, the year is shaping up to be stronger, so far, than 2007, when he handled just four deals total. Most of his M&A transactions are in the $5 million to $25 million range and involve privately held companies.

Royse says he believes that a network of referral sources that's grown since he opened in 2006 and an hourly rate of about $400 both help his business. Though expertise and service, of course, play a role, "we are, usually, the least expensive lawyers in the room," he says. "In a recession, I think it can't hurt."

Other San Francisco Bay Area lawyers who handle M&A deals worth up to $100 million say that they have felt shielded so far from the economic downturn and the crunch that is paralyzing credit markets.

One reason: Players in that sphere don't, typically, rely on debt to get the job done. Lawyers like Royse say that their work has recently been fueled by corporations' strategic acquisitions, which tend to be less dependent on market conditions and the availability of credit than investments by financial buyers like private equity firms. As the economy softens and the dollar drops in value, U.S. companies also look more attractive to international buyers. Plus, there may be tax incentives to do a deal this year.

Khoa Do, a DLA Piper partner in Silicon Valley, said that his middle-market M&A work continues at a rate consistent with 2007. But it remains to be seen, he noted, whether that segment will lose steam along with the rest of the economy or if it will make a better showing than last year.
"The end-of-year numbers will settle the debate," said Do, who charges $700 an hour, in an e-mail. "I can say, however, that the middle-market M&A transactions have greater potential this year while the mega deals are few and far between."

And to be sure, deal work at the lower-dollar end hasn't gone entirely unscathed. Royse says two deals he was involved in came to a halt last year thanks to the credit crunch. Both were typical leveraged deals, he said, one worth about $200 million and the other about $16 million.
Samuel Dibble, a corporate partner at 118-lawyer Farella Braun & Martel, says that financing a deal in the middle market is far less dependent on the ups and downs of Wall Street and the syndication of multibillion-dollar loans by groups of banks. The biggest deals are in trouble because it's "very difficult to syndicate that large a line of credit," he said. Dibble, who works on deals in the $20 million to $100 million range, says that his M&A flow has been steady compared with last year. "When you're dealing with one bank who is comfortable with the transaction, they will go ahead even in a downturn."

Lawyers at San Francisco's 20-attorney MBV Law, which handles deals worth between $2 million and $100 million, say work started to pick up at the end of last summer and continues strong despite a drop-off in leveraged buyouts. The firm has handled about twice as many mergers and acquisitions in the first quarter of this year, valued at a total of $240 million, compared with those it did during the same period last year, valued at a total of $50 million, said partner Laura Howard.

This year, buyers are more likely to purchase strategic assets using their cash or their own shares, MBV partner Gregory Beattie said. "It's not an investment bank saying this is the right time to go buy an entity," said Beattie, who is based in Emeryville, Calif. "These are strategic deals: They want to grow their business, not make fast cash."

San Francisco-based Joshua Ridless, who opened his two-lawyer firm in 2000, says that the downturn in the economy has affected at least some of his deals' value, but not the quantity.

So far this year, he has been handling about a dozen deals, valued at a total of about $20 million, compared with 20 last year worth between $50 million and $75 million in all. He says he plans to add another corporate attorney to handle the work.
"Usually, when you see a downturn, you expect to see a lot of struggling companies being bought for pennies on the dollar, like going to the store and everything is on sale," said Ridless, who charges $260 per hour. "I'm seeing some of that, but I'm also seeing clients acquire very strong companies for fair market value."

Some buyers, he added, are using the current economic uncertainty to negotiate tougher terms of a deal and revalue it.
Uncertainty about market conditions has also taken its toll. William Myers, a partner in Morgan, Lewis & Bockius' business and finance practice who specializes in deals in the $50 million to $500 million range, says that even strategic buyers have been caught in the headwinds. "I wouldn't say there are fewer strategic deals," he said. "They are moving more slowly because clients who are buyers are more cautious."
Meanwhile, Royse and some other lawyers interviewed for this story say international buyers are taking advantage of the weakening U.S. dollar and economy.

Royse says that foreign-based buyers from countries like India, Israel and Taiwan have, increasingly, figured in his M&A transactions in the last year. For example, he represented Phoenix-based solar energy company Stirling Energy Systems Inc. in a joint venture signed (.pdf) last month, in which NTR plc, an international renewable energy developer and operator based in Dublin, Ireland, acquired a controlling interest in Stirling for $100 million.

David Lee, a Menlo Park, Calif., partner at 15-lawyer White & Lee, also says his M&A deal work is up compared with the same period last year. He handled five deals in 2007 and already has five going in 2008, one of which he expects to close soon.
Like most small-firm lawyers, Lee usually represents the target company in deals worth anywhere between $2 million and $80 million. The vast majority of his M&A work comes in the form of a so-called "asset purchase" in which the acquirer buys part of another company that has developed a specialty in a niche area. "They'll buy most of the company, but won't buy a certain division or its operations in other countries," he says. As an example, he cites Celera's roughly $33 million cash purchase last fall of his client, Atria Genetics Inc., maker of a device that tests bone marrow in transplant cases.

At an hourly billing rate of $495, Lee says he attracts work that would in a good economy go to a bigger firm. "I think [companies] are being frugal, their budgets are under pressure, they want to get the deals done," Lee says. "For small non-mission-critical deals, they are more inclined to use a small firm."

When clients who worry about the health of the economy ask whether they should wait to sell, Farella Braun's Dibble says he tells them to do the deal before the next president takes office and changes tax rates. "With the election on everyone's mind, I think there's a general consensus that the 15 percent capital gains tax is likely to increase if a Democrat is elected, possibly as soon as 2009."

For more information contact:
Joshua Ridless
(415) 614-2600
http://www.ridlesslaw.com

Law Offices of Joshua A. Ridless, in the news:
Small Law Firms Stay Under the M&A Radar, The Recorder, May 5, 2008:
http://www.law.com/jsp/law/sfb/lawArticleSFB.jsp?id=900005561727
http://www.digmypage.com/san-francisco-business-commercial-attorneys

Josh Ridless Achieves Copyright Precedent in Federal Court, Pike & Fischer Internet Law and Regulation Reports, September 12, 2007:
http://www.ridlesslaw.com/RidlessLaw_BriefSept.2007.pdf
http://www.digmypage.com/SF-Business-Attorney
http://www.digmypage.com/san-francisco-ip-attorneys

Small biz how to Probe legal, tax structure of partnership agreement, San Francisco Business Times, August 17, 2007:
http://sanfrancisco.bizjournals.com/sanfrancisco/stories/2007/08/20/smal...
http://www.digmypage.com/san-francisco-business-lawyers

Who Says Being a Lawyer Has to Suck?, San Francsico Magazine, January 2007:
http://www.ridlesslaw.com/San_Francisco_Magazine_Who_Says_Being_a_Lawyer...
http://www.digmypage.com/sf-business-attorneys

Profile of a President, San Francisco Attorney Magazine, Summer 2006:
http://www.digmypage.com/san-francisco-commercial-business-lawyers
http://www.ridlesslaw.com/2006%20SF%20Atty%20Mag%20-%20Summer%20-%20Ridl...

Laywer Athletes Work Out for Charity, San Francisco Attorney Magazine, Fall 2004:
http://www.ridlesslaw.com/lifestyle.pdf

Busy S.F. corporate lawyer prizes his volunteer work, San Francisco Chronicle, May 27, 2003:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2003/0...
http://www.digmypage.com/san-francisco-business-commercial-law

VLSP Cycling Challenge:
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