M&A back on track?

David Smith, partner at law firm Fasken Martineau, talks to James Harris about M&A activity and signs of economic recovery.

David Smith, partner at law firm Fasken Martineau, talks to James Harris about M&A activity and signs of economic recovery.

David Smith, partner at law firm Fasken Martineau, talks to James Harris about M&A activity and signs of economic recovery.

Deal activity among life science and mining companies picked up after the first quarter of 2009. ‘There was a period of about four months last year when nothing was happening, and then the M&A market took off. For cash-rich companies there were plenty of bargains to be had last year,’ observes David Smith, partner in the London office of international law firm Fasken Martineau.

The London office generally focuses on mid-market deals on the Alternative Investment Market (AIM), although this year the firm also worked on the English law aspects of Sinopec’s acquisition of petroleum company Addax for $8 billion (£4.9 billion), believed to be the largest deal in the sector by a state-owned Chinese company to date.

For Smith, an upsurge in interest from Chinese acquirers is highly likely: ‘Given the relative strength of the Chinese economy compared with the rest of the world, it’s getting cheaper and cheaper for them. Chinese companies are active acquirers, and in our experience they seem to be focusing strongly on Africa.’

Summit of achievement

The firm also represented AIM-listed drug discovery company Summit Corporation in its restructuring programme, which involved the disposal of Zebrafish to Evotec for £500,000 and the £950,000 sale of Dextra Laboratories to New Zealand Pharmaceuticals.

‘It’s all part of the repositioning that takes place in a recession. It makes you concentrate on what your core business should be,’ says Smith. ‘The company, which had previously experienced funding difficulties, has repositioned itself and is now a revitalised business with two years of working capital in its bank account.’

The London office of Fasken Martineau, which was originally a Canadian firm, houses 29 of the firm’s 298 partners. There are ten partners in the corporate team, which typically works on deals with a value of up to £300 million.

While many law firms have been forced to slim operations this year, Fasken Martineau has added 12 lawyers to its London office and opened a Paris office by merging with Gravel, Leclerc & Partners. As Smith notes, the merger is designed to strengthen the firm’s presence in France, but also to develop its French-speaking Africa practice.

This is a growth area for the firm that is intended to complement its existing African practice in which its Johannesburg office plays a key role.

Money talks

As companies start to consider making an acquisition, Smith notes that it has never been more important to have a sizeable war chest: ‘If you’re a seller and you have the choice between dealing with someone with cash and someone who needs access to capital markets to raise money for a bid, unless there is a very good premium in the price, you’ll go for the party with cash.’

In terms of AIM, Smith concedes that the market has posed challenges over the past year, particularly for early-stage concerns in life sciences and mining: ‘Companies in these sectors [often] don’t have cash flow. It was almost a question of chance if they hit the recession with cash in their pocket, and those without cash have found it hard. Share prices have been hammered, so most of those businesses able to raise money have had to do so at a substantial discount.’

Funding requirements brought AIM-listed Rift Oil and Canadian oil and gas producer Talisman together. After making gas discoveries in Papua New Guinea, Fasken’s client Rift Oil had embarked on the search for a joint venture partner to develop the project, bringing it to the attention of Talisman, which acquired Rift Oil for £110 million.

‘It was a typical deal. The only due diligence issue was that one of the exploration licences from the government was up for a routine renewal; without it, the business wouldn’t have been able to continue, but it came through and the deal could go ahead. The buyers were keen, had their own cash resources and could move quickly,’ says Smith.

After a difficult year, attracting companies from overseas is critical to AIM’s resurgence. Says Smith, ‘It will take time for small-cap markets to recover across the world. Share prices on AIM have recovered fairly strongly, though, and there have been a reasonable amount of secondary fundraisings, but it remains to be seen whether there is genuine investor appetite for IPOs.’

Although the figures aren’t overly encouraging, Smith is optimistic: ‘These things are cyclical and AIM just hasn’t been through a cycle like this before. The closest it came was the dotcom crash in 2001, and that wasn’t a global recession, it was focused on the technology sector.’

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To find out more about Fasken Martineau click here

Nick Britton

Nick Britton

Nick was the Managing Editor for growthbusiness.co.uk when it was owned by Vitesse Media, before moving on to become Head of Investment Group and Editor at What Investment and thence to Head of Intermediary...

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