Deal size: What's your average?

Author: | Published: 1 Dec 2006
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European announced mergers and acquisitions have exceeded $1.2 trillion this year. Just three European deals had a combined value of around $156 billion and leveraged buyouts have risen by 42%. But European law firms are failing to match their US counterparts on the average size of instructions.

The league tables for European mergers advice make for familiar reading. Deal volume tables regularly feature six or seven UK firms at the top, with the top four places reserved for the four biggest firms. Composing equivalent rankings for average deal size paints a different picture. While Freshfields Bruckhaus Deringer heads the latest Mergermarket league table for announced transactions (with €310 billion over 215 deals) and Skadden Arps is in fourth place, the US firm worked on €238 billion of M&A over just 83 deals.

Skadden is not an exception. Clifford Chance has advised on over €243 billion worth of deals this year, over 221 transactions, and Linklaters acted on 220 deals worth €258 billion. Sullivan & Cromwell and Davis Polk & Wardwell, meanwhile, acted on just 45 and 24 deals respectively, on values of €191 billion and €143 billion. Skadden's average deal size is $2.8 billion; Freshfields' average is $1.4 billion, while Linklaters and Clifford Chance average $1.2 billion and $984 million respectively.

Data from Thomson Financial tell a similar story, with Freshfields, Linklaters and Clifford Chance ranked first to third in terms of value. Freshfields is accredited with 211 deals worth $324 billion. Skadden is ranked fourth in Thomson's table with $246 billion over 72 qualifying transactions.

Some say that the league tables are too blunt an instrument to use in assessing firms' performance; they fail to discriminate between roles of differing significance, and are distorted by big one-off instructions. And US firms' figures in particular are distorted by the size of the US domestic market. Despite these reservations, by September the tables represent a reliable guide to the top performing M&A practices.

Average M&A deal size is not an exact correlate of profitability, but it is a good indicator. When the firms in Mergermarket's top 20 are ranked according to average deal value, only one European law firm, Bredin Prat, makes the top five. (Italy's Chiomenti Studio Legale and Bonelli Erede Pappalardo, and Germany's Hengeler Mueller are the other European firms to figure in the deal size top 10.) League tables for firms' profit per equity partner reveal a similar pattern, with US firms dominating the industry tables.

So what are the implications of the data for law firm strategy? Some in the market think the data demonstrate the power of the network, with firms that did not believe in the network approach are trying to replicate the model as best they can. Others think this analysis is too simplistic, pointing out that successful networks take various forms, only one of which is the multiple office model. Confusingly, lawyers on each side of the debate point to the success of Slaughter and May and Hengeler Mueller to support their assertions. DA

Top 20 firms in Europe by total value YTD
Rank Firm Value (€million) Deal count
1 Freshfields Bruckhaus Deringer 309,551 215
2 Linklaters 257,548 220
3 Clifford Chance 242,941 247
4 Skadden Arps Slate Meagher & Flom 237,571 83
5 Sullivan & Cromwell 191,179 45
6 Allen & Overy 159,047 212
7 Davis Polk & Wardwell 143,190 24
8 Herbert Smith, Gleiss Lutz, Stibbe 143,136 88
9 Hengeler Mueller 138,712 46
10 Bredin Prat 120,805 30
11 Slaughter and May 115,179 74
12 Cravath Swaine & Moore 114,300 13
13 Shearman & Sterling 105,016 64
14 Chiomenti Studio Legale 102,477 36
15 Latham & Watkins 100,886 66
16 Cleary Gottlieb Steen & Hamilton 98,263 70
17 Simpson Thacher & Bartlett 96,583 23
18 Bonelli Erede Pappalardo 89,224 36
19 White & Case 86,297 90
20 Debevoise & Plimpton 83,435 36
Source: mergermarket

Top 20 firms in Europe by average deal size YTD
Rank Firm Average deal size (€ million)
1 Cravath Swaine & Moore 8792
2 Davis Polk & Wardwell 5966
3 Sullivan & Cromwell 4248
4 Simpson Thacher & Bartlett 4199
5 Bredin Prat 4027
6 Hengeler Mueller 3015
7 Skadden Arps Slate Meagher & Flom 2862
8 Chiomenti Studio Legale 2847
9 Bonelli Erede Pappalardo 2478
10 Debevoise & Plimpton 2318
11 Shearman & Sterling 1641
12 Herbert Smith, Gleiss Lutz, Stibbe 1627
13 Slaughter and May 1556
14 Latham & Watkins 1529
15 Freshfields Bruckhaus Deringer 1440
16 Cleary Gottlieb Steen & Hamilton 1404
17 Linklaters 1171
18 Clifford Chance 984
19 White & Case 957
20 Allen & Overy 750
Source: mergermarket