© 2012 The Texas Lawbook.
By Mark Curriden, JD
Senior Writer for The Texas Lawbook
Business transactional lawyers in Texas saw their workload pick up significantly during the second quarter of 2012.
New data by mergermarket shows that there were 96 corporate mergers and acquisitions in Texas during April, May and June, which is a 26 percent increase over the same period in 2011. It was the highest deal count for any quarter since the fourth quarter of 2010.
The Q2 numbers somewhat offset a dismal first quarter. Overall, the number of corporate transactions during the first six months of this year totaled 172, which was an eight percent decline from the same period a year earlier.
The value of the deals totaled more than $57.6 billion, which is up 13.6 percent from 2011. However, the spinoff of Phillips 66 from ConocoPhillips accounted for $20.6 billion, or more than one-third of the total amount, according to mergermarket, an independent research firm based in London.
“Energy deals continued to dominate the Texas deal-making landscape in the first half of 2012,” says Chad Watt, a Dallas-based analyst on M&A matters for mergermarket. “Big public energy businesses and energy-focused private equity firms have been taking advantage of soft commodity prices to make buys. These buyers believe energy production in the U.S. will continue to grow and remain profitable despite near-term commodity price declines.”
Two law firms – Bracewell & Giuliani and Vinson & Elkins – dominated the mergermarket’s top spots for total deals announced and total value of deals.
Bracewell, which was the lead legal adviser for ConocoPhillips in its spinoff, handled $33.8 billion in new business transactions. Overall, the Houston-based firm worked on 18 deals, including Houston-based El Paso Energy Corporation’s $7.1 billion sale of assets to Apollo Global and Riverstone Holdings, which closed in May.
On volume of deals, Vinson & Elkins lapped its competitors. V&E was the legal adviser in 37 major deals valued at $26.4 billion. It was involved in Apollo and Riverstone’s purchase of El Paso’s assets and the $2.5 billion sale of Caiman Eastern Midstream to Williams Partners.
Baker Botts and Fulbright & Jaworski also worked on 18 deals during the first half of 2012.
While the big $1 billion and more deals get all the attention, the meat and potato transactions that keep many M&A lawyers going involves smaller to mid-sized companies.
According to mergermarket, only nine of the 172 deals announced during the first half of 2012 were valued at $1 billion or more. The media company reports that 154, or nearly 90 percent, of the M&A in Texas so far this year have been valued between $5 million and $500 million.
This week, for example, Kohlberg Kravis Roberts agreed to pay Frisco-based Comstock Resources approximately $200 million for one-third ownership of 28,000 acres in the Eagle Ford shale in south Texas.
Baker Botts represented KKR.
Vince Foster, the chairman and CEO of Main Street Capital, a private investment firm in Houston, says most investors were expecting a bump in deal-making caused by “tax sensitive selling” due to possible rate increases next year.
That hasn’t happened so far, he says, and time is running out for 2012.
“All the conditions are right,” says Foster, who is also a lawyer. “There’s a lot of money on the sidelines. The total cost of financial leverage is at an all-time low.”
Foster says that Texas is “clearly insulated” from the M&A woes in other parts of the country thanks to the energy sector.
Mergermarket reports that 85 percent of the $57.6 billion in deals during the first six months of 2012 involved energy companies.
“Having a robust energy business in Texas helps everyone, from energy-related service providers all the way down to homebuilders,” he says. “There’s a lot of balance sheet repositioning going on, as oil and gas prices fluctuate.”
Bracewell corporate partner Bill Gutermuth says that the first half of 2012 was particularly robust for his firm’s M&A practice, pointing to the ConocoPhillips and El Paso transactions.
“In addition, we saw considerable M&A activity among smaller public and private upstream companies during the same period, with the acquisition of Three Rivers by Concho Resources being among the notable transactions,” he says.
Gutermuth says that Bracewell also was involved in a significant number of private equity-sponsored transactions focused particularly on upstream and midstream companies.
“Several of our private equity clients have recently closed new funds and are actively seeking and investing in attractive energy opportunities, both in Texas and elsewhere around the country,” he says. “It’s also relevant to note that for every transaction that makes it to closing, there are many others that are considered and diligenced but for whatever reason are not consummated.
“There is a lot of transaction-related activity that is ongoing but not apparent,” says Gutermuth. “Based on the amount of time we spend consulting with clients on potential transactions, there is no reason to expect M&A activity to abate significantly. Accordingly, I would expect energy M&A and other strategic transaction activity that characterizes our practice to remain strong through the end of the year and beyond.”
Foster, Gutermuth and others point out that there’s a lot of investment underway right now in infrastructure.
San Antonio-based EnCap Flatrock Midstream’s closing of a second private equity fund valued at $1.75 billion is a great example. That deal, which closed in July, was led by lawyers at Thompson & Knight.
On the financial adviser side, Barclays handled 16 of the Texas deals valued at $15.4 billion. Goldman Sachs was second with 15 deals valued at $10.4 billion. Meanwhile, JP Morgan topped the deal value league table with $37.6 billion for 11 deals. Credit Suisse was second with $30.9 billion for 10 deals.
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