Chicago law firms handling initial public offerings of stock for corporations had a banner year in 1996, and most expect the IPO practice to continue to thrive despite a lull at the beginning of this year.
"1996 was a great year for IPOs," said Mayer, Brown & Platt partner Edward S. Best, who has practiced corporate securities law with the firm since 1986.
Lawrence D. Levin, head of the securities department at Katten, Muchin & Zavis, agrees.
"1996 was our strongest year" in the 12 years he has been with the firm, he said.
The recently published "IPO Rainmakers: The Directory of IPO Counsel 1996," from the Chestertown, Maryland-based Corporate Finance Institute Inc. includes a number of Chicago law firms in the list of top IPO counsel nationwide.
Sidley & Austin led all Chicago law firms in 1996 in both number of deals and dollar volume, according to "IPO Rainmakers." The firm represented either a corporation or an underwriter in 11 IPOs with a total dollar volume of $1.262 billion.
Larry A. Barden, a partner in Sidley & Austin's corporate and securities group, said his firm had even a better year than the report indicates since the firm closed a 12th IPO near the end of the year that was not counted in the report.
Other leading firms, according to the report, include Katten, Muchin, second among Chicago firms in number of deals with eight IPOs for a total dollar volume of $365.9 million, and Mayer, Brown & Platt, second among Chicago firms in total dollar volume at $986.2 million from seven IPOs.
Three other Chicago firms also worked on seven IPOs each: Kirkland & Ellis for a total dollar volume of $923.4 million; Winston & Strawn for a total dollar volume of $675.1 million; and Gardner, Carton & Douglas for a total dollar volume of $302.2 million.
Last year also saw Chicago law firms involved in some of the nation's largest deals.
Mayer, Brown represented CompuServe when the online information provider went public in the 10th-largest IPO of the year at $480 million.
Sidley & Austin worked on two IPOs in the top 30: Metromail Corp. at $246 million and American Portable Telecom Inc. at $208 million.
Observers at Chicago law firms attribute the booming IPO practice to a number of factors.
"Chicago and the Midwest have benefited from the favorable IPO environment that has existed nationally in recent years," said Barden, the Sidley & Austin lawyer.
The number of IPOs nationwide surged to 768 in 1996 from 512 in 1995, a 50 percent increase, according to Hale & Dorr, a leading Boston-based IPO law firm. The total dollar volume nearly kept pace, increasing 46 percent to $38.8 billion in 1996 from $26.6 billion in 1995.
A Hale & Dorr report on IPOs also indicates that the Midwest region experienced similar gains, with the number of IPOs increasing from 67 in 1995 to 106 in 1996 and the total dollar volume from $4.4 billion in 1995 to $5.79 billion in 1996.
Best, the Mayer, Brown lawyer, notes that many companies are taking advantage of recent upturns in the stock market to take spin-off or subsidiary enterprises public.
"The deconsolidation of big enterprises has contributed greatly to the IPO market," he said.
Some trace last year's success to characteristics unique to their firm.
"Many of our clients have been in industries that have been hot areas for going public," said Katten, Muchin's Levin, citing technology and health care.
Carter W. Emerson, senior partner in corporate securities at Kirkland & Ellis, credits the firm's private equity practice with bringing in more IPO business.
In the private-equity practice area, Emerson explained, the firm represents a number of venture capital funds and investment bank subsidiaries that invest in the stock of startup or emerging growth companies as well as companies going though leveraged buyouts.
"When the time comes for the investors to realize a profit by taking the company public, they naturally turn to us [for the IPO]," he said.
Some also claim that Chicago law firms may be expanding their share of the national IPO market.
According to Best, the larger Midwestern law firms tend to get anywhere from 10 to 15 percent of the overall IPO market while a few firms on either coast currently do the bulk of the work.
"The financial services market is very centered on New York, and the rapidly developing technology and biotech companies driving the market are centered on the West Coast," he said.
Levin said Chicago law firms are garnering an increasing share of this business.
"[Chicago] firms are developing expertise that they did not have even a few years ago. More and more East Coast investment banks that would have used a New York firm to handle a Midwest IPO are now going to local counsel," he said.
Kirkland & Ellis' Emerson suggests that the IPO market is "not nearly as regionalized anymore" because all of the major Chicago law firms have a substantial securities presence in their New York offices.
"The quality of Chicago firms in the securities area has always been top-notch and will continue to be," he said.
Barden said he also believes that local law firms will continue to have an active part in the IPO market because of an increasing number of technology and other emerging growth companies located in the Chicago area.
He cited Chicago-based Peapod Inc., a company that allows computer users to order groceries over the Internet and that announced an IPO this June, as an example.
Such companies tend to stay in the Midwest when looking for legal counsel to help them go public, he said.
While there are those who detect a slight decline in the IPO market this year most say the outlook for this practice area in the near future remains.
An annual trends report issued by Robert Denney Associates Inc., a 20-year-old Wayne, Pa.-based management consulting firm, ranked corporate finance, which includes venture capital and IPO work, as a hot practice area for 1997.
The consulting firm's report on "What's Hot and What's Not in the Legal Profession" placed corporate finance in a group just below the "red hot" areas of intellectual property, mergers and acquisitions, project financing, and energy and telecommunications.
Best said he sees the IPO practice cooling down this year as only the more seasoned companies are going public.
"It seems like the IPO market has slowed down a bit this year. It's still busy, but a little less busy," he said.
He adds, "The markets are still good, but technology issues are not quite as hot. Last year we saw a lot of technology issues going public on a prayer. They only thought it went up; now they know it can go down, too."
Barden remains optimistic.
"Although there has been a slowdown nationally in the number of IPO filings in the first half of 1997, in recent months we have experienced increased interest among companies for IPOs," he said. "We expect that investors' appetites for IPOs will remain strong for the foreseeable future and that securities work will continue to be a major part of our corporate practice."
Others echo Barden's observations.
"IPO activity had a very slow start in 1997 ... but now we are seeing a lot of activity," said Levin, noting that he is currently working on three IPOs at the same time and cannot remember doing that before.
Adds Emerson: "The market has come back. This year will be as strong as, or stronger than, last year."
Levin concludes, "We are in the midst of the strongest bull market we have ever seen, and the time to go public is now."
Reproduced with permission from the Chicago Daily Law Bulletin