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M&A Pioneers Adapt to the Ever-Changing Game

When it comes to mergers and acquisitions, Jack Levin wrote the book. Literally.  "It's four volumes, 3,700 pages, and we completely revise it and republish it every six months," said the Kirkland & Ellis partner of Mergers, Acquisitions & Buyouts, which is read each year by thousands of U.S. attorneys, executives and students who want to learn the ins-and-outs of major corporate deals. "It's a full-time job just keeping up with all the legal and tax code changes and new trends," Levin said. "We keep adding a hundreds pages here, a hundred pages there."

Levin has co-authored the book for the last 12 years with Georgetown Law Professor Martin D. Ginsburg, husband of U.S. Supreme Court Justice Ruth Bader Ginsberg. It has become a classic in the field, testament to how much Levin has seen and done in M&A since he started in the late 1960s.

"Forty years ago, Chicago was not at the forefront of complex deal work. If you had two or three deals a year, you'd be lucky. Midwestern companies were not active in growing by acquisition, and Chicago firms weren't involved on a national level," Levin said. "Now we're doing hundreds of deals a year. We've become a mecca for private equity funds. We do complex transactions around the world. It's the difference between night and day."

Elder statesmen in the field have seen the M&A market go through several boom periods over the years, starting in the 1980s with the explosion of junk bond financing and leveraged buyouts. M&A emerged as the fast track to growth for both up-and-comers and major conglomerates. The pace only quickened in the 1990s, fueled by the tech boom and the soaring stock market.

Lawyers like Levin and others took part in the innovations along the way, crafting some of the novel solutions to structure the transactions and finance the deals. They see the pace of M&A and the role for Chicago firms growing more in the years to come.

"The deals are only going to get bigger and more international. With the economy in a resurgence, we're going to see a steady growth in the next few years," said Herbert S. Wander, a senior partner at Katten Muchin Zavis Rosenman, who has led hundreds of M&A deals in Chicago since the 1960s. "You're going to see more going-private transactions, more foreign buyers, a much bigger role by private equity firms. And the pace is going to get faster."

Back in the day

Wander said it's a far cry from his earliest deals.

"Back then it took forever," he said. "They were mostly small, private companies. You'd send an agreement by mail, no e-mail or FedEx, and it would take weeks before you'd hear back. Then you'd take a week or two to look it over, meet the other side for an entire day to scrutinize it line by line, using carbon paper."

"It was old school," Wander said. "Now you e-mail it, the other side marks it up, sends it back overnight. You never even see the lawyers. Everything is faster, more hectic, more efficient."

Robert A. Helman, a senior partner and former chairman at Mayer, Brown, Rowe & Maw, has been leading deals since 1967 and has taken part in several historic ones, including the merger of the Burlington Northern and Santa Fe railroads in 1995. He also was involved in some of the first hostile takeovers in the oil and gas industry in the 1970s.

Helman said the era of hostile takeovers has pretty much ended.

"Legal maneuvering has become less important to a deal. All the offenses and defenses are pretty well mapped out at this point. Unless someone comes up with a new tactic, it's hard to catch a company off guard," Helman said. "I think it's a good thing. The economic and financial aspects take precedence now, and the companies need careful, thoughtful legal advice on making the right decisions."

Helman said he has seen a change for the better in corporate boards.

"With Sarbanes-Oxley and increased federal and state regulations, directors are paying more attention. As a result, managements are paying more attention," Helman said. "That leads to better deals overall."

Helman said Chicago lawyers are doing more high-profile deals than ever before, but one bad note is that fewer of the deals originate in Chicago.

"Chicago is losing corporate headquarters. We're essentially down to one moderately sized Chicago-based bank, and that has an effect. The local economy is throwing off fewer and fewer M&A transactions, so the large firms are responding by opening more offices in New York and elsewhere," Helman said. "The private equity funds are picking up some of that slack, but Chicago firms are doing fewer Chicago deals."

Broader horizons

Several senior M&A attorneys said the future of the field is in national-level and international transactions, and more and more of that involves China.

Thomas Cole of Sidley Austin Brown & Wood said U.S. companies right now are mostly engaging in joint ventures with Chinese firms, uncertain about financial transparency in the country. But already South Korea and Japan are buying up assets in the country.

"I've gone to many board meetings recently, and the number of times China has been brought up, both as an opportunity and as a threat, is really quite striking. They're starting to look at ways to buy their way into the Chinese market," Cole said. "American companies aren't quite there yet, but it's coming."

The trend is beginning already in some sectors. Peoria, Ill.-based Caterpillar Inc. announced in December it was buying Shandong SEM Machinery Co., a Chinese wheel loader manufacturer. Caterpillar employs about 2,000 people throughout China.

"Deals have always been multi-national, but it has gone to a new level these days," said Scott J. Davis, an M&A partner at Mayer Brown. "Just the other day I came in at 6 a.m. for a conference call with lawyers from Australia, Japan, Switzerland, Spain, the Netherlands, Sweden and London. This is where M&A is going. Time zones are the biggest problem, and no amount of technology can change that."

Charles W. Mulaney at Skadden, Arps, Slate, Meagher & Flom predicts more foreign companies will buy U.S. businesses in light of the weak dollar. He sees further consolidation taking place in the telecommunications, financial services and technology areas.

Mulaney also sees private equity firms being consistent deal generators in the future because of how quickly they have to turn their investments.

"Private equity companies run on a pretty regular timeline. After four, five, six years, they either have to sell the company or take it public so they can then pay their investors and buy a new company," Mulaney said. "That leads to a lot of deal work."

Cole said merger work depends largely on the economic climate, the health of the stock market, the state of interest rates and the exchange rate. Private equity might slow if the interest rates go up significantly, he said.

"Chicago firms will have a lot of legal work no matter what. All the financial signs point to a steady increase in M&A in the near future," Cole said.

Levin of Kirkland has been successful in staying ahead of the game. He was a pioneer in M&A transactions and then a father of private equity work, authoring another 1,000-page book on the subject.

"I've been doing this work for decades, and it's still impossible to know everything," Levin said. "The tax laws, securities laws, accounting rules, bankruptcy laws, and techniques for organizing transactions constantly change the rules of the game. You just have to keep on learning and try to think ahead."

Reprinted with permission from the Chicago Lawyer, January 2005