Texas Law Firms Exporting their M&A Expertise

© 2015 The Texas Lawbook.

By Natalie Posgate and Mark Curriden
HOUSTON (March 8) – When Kansas natural gas company Ferrellgas Partners decided to purchase Bridger Logistics last June for $838 million, Ferrellgas hired lawyers from Akin Gump in Houston to do the deal. By contrast, Dallas-based Bridger turned to the national law firm Latham & Watkins as its legal adviser.
Two months later, NET Midstream of Houston sold seven natural gas pipelines for $2.1 billion to Florida-based NextEra Energy Partners. NET used Latham as its legal adviser while NextEra turned to Locke Lord attorneys in Houston.
The two deals are examples of a developing trend in the world of mergers and acquisitions in the energy sector: a growing number of Texas-based companies employ national law firms to handle their legal work, while corporate law firms headquartered in Dallas and Houston are increasingly being engaged by out-of-state businesses.
For six years, large Texas legacy law firms hemorrhaged talent and long-time, local clients to elite national firms that set up new outposts in Dallas and Houston.
Data shows that major corporations headquartered in Texas turned more often to the national law firms instead of regional firms to handle their big-dollar mergers, acquisitions, joint ventures, divestitures and securities offerings.
That same data, however, indicates that some of the biggest Texas-based firms are generating increased revenues by exporting their legal expertise in oil and gas law to energy companies and private equity firms headquartered beyond the state’s borders.
“The Texas legal market is maturing before our eyes,” Ward Bower, a law firm consultant at Altman Weil, told The Texas Lawbook in an interview late last year.
Legal industry analysts say that the nine largest Texas-based law firms – Andrews Kurth, Akin Gump, Baker Botts, Bracewell, Haynes and Boone, Locke Lord, Norton Rose Fulbright, Thompson & Knight and Vinson & Elkins – watched almost helplessly as national law firms moved into the Dallas and Houston markets and stole away some of their best M&A and capital markets lawyers by offering significantly more money.
“Prior to 2010, the big Texas law firms had Texas-based companies all to themselves,” Bower said in an interview last fall. “The Texas law firms never had to compete for business.
“Then Latham moved into Houston, hired some of the best corporate lawyers from the top Texas law firms,” he said. “Latham witnessed extraordinary success in Texas, so other law firms followed. The Texas law firms are only now learning to compete.”
The elite national law firms – Latham, Gibson Dunn & Crutcher, Kirkland & Ellis, Sidley Austin and Simpson Thacher & Barlett– gambled that general counsel at large Texas corporations would continue to use the same lawyers even if those lawyers leaped to other law firms.
The strategy worked and M&A data proves it.
Mergermarket, an independent global research firm, shows that 16 of the 25 law firms that advised the most Texas businesses in their 2015 M&A activity are based outside of Texas.
That is an exact flip from 2009, when Mergermarket shows that 17 of the top 25 legal advisers in Texas were law firms headquartered in the state.
“The invasion of national firms negatively impacted all the corporate law firms based in Texas,” said Chad Watt, an analyst and writer for Mergermarket. “The numbers don’t lie.”
True, but the numbers also tell a second story.
Data from The Texas Lawbook’s Corporate Deal Tracker and Mergermarket shows that several of the Texas-based law firms – either intentionally or by happenstance – offset the loss of local clients in 2015 by significantly increasing the amount of legal work they did for non-Texas businesses.
Seven of the nine Texas legacy law firms increased the number of deals they handled for out-of-state corporations in 2015 – five of the nine by more than 25 percent, according to Mergermarket.
“A lot of the biggest deals we did last year were for non-Texas companies, but that was not by design,” said Bracewell M&A partner Roxanne Almaraz. “We really don’t think about clients as being based in Texas or elsewhere.”

The Corporate Deal Tracker shows that the M&A lawyers at three Texas-based law firms – Akin Gump, Bracewell and V&E – did nearly as much legal work for out-of-state businesses in 2015 as they did for hometown clients.
John Goodgame, a corporate partner in the Houston office of Akin Gump, said “it was natural” that companies involved in the oil, gas and power sectors across the U.S. “would seek legal assistance from” Texas law firms.
“Houston is the world’s center for energy law expertise,” said Goodgame, who represented a half-dozen non-Texas energy firms in deals in 2015, including Arizona-based Northern Tier Energy, Kansas-based Ferrellgas and two Colorado oil companies – Bison Midstream and Westmoreland Resource Partners.

M&A lawyers for Akin Gump and Bracewell in Texas each advised 28 Texas companies involved in M&A activity in 2015. Those same attorneys for the two firms handled deals for 27 out-of-state businesses last year.
Corporate lawyers in the Texas offices of Baker Botts represented clients in 47 separate transactions in 2015 – 35 percent were for clients headquartered elsewhere.
“General counsel both in Texas and elsewhere just want to hire those who have the expertise to get the job done,” said Kelly Rose, a partner in the Houston office of Baker Botts. “It makes sense that energy companies seeking the best M&A and capital markets lawyers will look at Baker Botts or V&E or another one of the law firms here.”

The distress in the oil patch will only exacerbate the trend, lawyers say.
“As deals become more bankruptcy-oriented, we will see more financial buyers from New York, Connecticut and elsewhere stepping forward as creditors and investors,” Goodgame said.
 
No Texas law firm was impacted more by the two negative trends than V&E. The Houston-based corporate law firm’s strength in the oil and gas sector allowed it to dominate M&A league tables that rank law firms representing Texas-based businesses for more than a decade.
Since Latham opened in Houston in 2010, V&E has seen more than three-dozen of its lawyers, including some of its most successful M&A and capital markets attorneys, leave the law firm to join national firms entering the Texas market.
V&E received a second body punch with the commodity crisis in the oil patch, which hit the firm disproportionately because V&E generates about 60 percent of its revenues from energy-related clients.
Mergermarket shows that V&E handled 47 mergers and acquisitions for Texas companies in 2015 – down from 86 such deals in 2014 or a 45 percent drop. But the firm filled the gap by representing 42 out-of-state businesses – most of them oil and gas companies – in mergers and acquisitions in 2015, which is more than any other Texas law firm, according to the Corporate Deal Tracker.

“Energy is more than just Texas and it’s more than just Houston,” said V&E Chairman Mark Kelly. “V&E – and for that matter, Baker Botts, Latham and other firms – have tremendous expertise that energy companies across the U.S. need.” 

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