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2011 saw the UK M&A market face its most challenging year on record, with total deal values just £75.1bn, nearly 10% down on the previous year’s figure. It is hardly surprising, given the successive shocks caused by the unfolding eurozone crisis and the stuttering domestic economy, that firms are increasingly looking away from developed economies to emerging markets deals, although on that front too there has been a decrease in the volume of transactions. From a global perspective, M&A values rose 4.7% in 2011 to $2.2 trillion, a far cry from the 24.7% increase between 2009 and 2010. In such tight market conditions, an increasing gulf has emerged between the handful of firms taking a role on the most complex cross-border transactions, and the mid-market players. US firms have also benefited from their ability to tap into a pool of acquisitive US corporates, with European deals frequently being led out of their London offices.

On the private equity side, the lack of liquidity continued to constrain market activity. Alternative debt providers stepped in to provide some of the debt required to push deals through, and high yield also took up some of the slack, with robust targets still proving attractive propositions. The decline in mega-deals caused even the larger sponsor clients to look to the increasingly congested mid-market for transactions, with legal advisers following suit; private equity powerhouses such as Clifford Chance and Freshfields Bruckhaus Deringer LLP saw more activity on this front. Deals continued to fall at the last hurdle due to buyers’ and sellers’ expectations not marrying, and the pick-up in deal flow at the beginning of 2011 was stymied by the unfolding eurozone crisis. Sponsor portfolio management was the order of the day, and distressed M&A also continued to feature in 2011’s transactional flow.

The equity capital markets space was relatively quiet, particularly in terms of IPOs. Although the market has seen some of the biggest deals of all time – notably the flotations of Facebook and commodities giant Glencore – these have been the exception rather than the rule. In the small and mid-cap space, there were very few IPOs on markets such as AIM, with only the mining and natural resources sector a source of significant activity. Secondary fundraisings and rights issues have been keeping lawyers busy as corporates wait for the macro-economic environment to stabilise and investor interest to return. A notable trend among law firms is the increased integration of US and UK capital markets capabilities, reflecting the growing interest among European corporates to do deals in the US.

Corporate tax lawyers, though affected by the downturn in M&A, remain very busy on the advisory side in light of continued regulatory change. This coincided with the continued focus on the tax affairs of big business, where scrutiny is becoming ever more stringent and firms are working ever harder to ensure the best structured outcome for their clients across the direct and indirect tax spheres.

EU and competition practices have also seen less M&A-related work, but activity levels are healthy enough in areas such as CAT and OFT investigations and litigation.

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