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March 19, 2010 3:25 PM

Law Firms Expect Rebound in Moribund IPO Market

Posted by Brian Baxter

It's been a pretty tame year so far for IPOs in the U.S. But corporate securities lawyers expect to see a steady rise in work after the steep drop-off in public offerings over the past two years. The reason for their optimism? China and Brazil, these lawyers say, are emerging markets for new public companies. And venture capitalists are increasingly looking to IPOs as exit points for investments as credit markets continue to thaw.

"Many of the companies now going public are further along in their development stages than they were before the collapse in 2008," says Lawrence Levin, cochair of the national securities law practice at Katten Muchin Rosenman. "Because they were out of the market for that period of time, we're seeing more quality companies that are considering an IPO as an alternative."

Kirk Davenport II, cochair of the capital markets practice at Latham & Watkins, says his firm has seen three times as many IPOs this year compared to 2009. (According to data from Renaissance Capital, there have been 19 U.S. IPOs in 2010, compared with 63 for all of last year; click here to compare those offerings with the largest IPOs in U.S. history.)

"The feeling is that things have finally hit bottom and people want to be there for the rebound," Davenport says. "There's a lot of money uninvested and there are a lot of great companies out there, be it in China or other places. We've got deals queuing up in all of our offices around the world and we're seeing increased appetite to buy this stuff."

Chinese companies seem poised to dominate the IPO market this year, even if some of China's regulators are urging restraint on high prices. As part of a panel discussion in January organized by the China Institute and Chinese Business Lawyers Association, corporate finance partner Robert Chilstrom of Skadden, Arps, Slate, Meagher & Flom told an audience that China's and Brazil's emerging markets would soon be pacing the capital markets.(Brazilian IPO requests boomed in the first quarter of 2010, according to Bloomberg.)

"The U.S. companies will have to compete in that space with these emerging markets," Chilstrom told the audience. "If you look at the data, despite the low market, there's still a sizable inflow [of capital] into the emerging markets. I think that will be a ten-year trend."

A lack of appetizing offerings in the U.S. is due to several factors, lawyers say.

"There's a lot of price pressure on IPOs, and one of the reasons the valuations are tight is because investors are saying to themselves, 'I'm not giving easy money to the venture capitalists or the private equity firms just so they're getting returns,'" says one Am Law 100 partner who asked to speak anonymously.

Despite reservations about a rebound in IPOs, this lawyer is optimistic that 2010 will be a better year than the last two. As the private equity world slowly regains its appetite for deals, many privately owned companies will be sold--either to a strategic or another PE firm--or go public. The payoff for law firms is the increase in regulatory work that usually accompanies a move to the public arena.

"Being a public company requires a lot more legal work than does being a private company," says Katten's Levin. "And the work and the advice that we're required to give public companies is much more extensive today than it was a few years ago, in advance of Sarbanes-Oxley and many other changes that the SEC has recently instituted, which require significantly more disclosure in a company's periodic regulatory filings."

But despite some regulatory reforms looming on the horizon, firms picking up increased IPO activity shouldn't necessarily expect immediate benefits in terms of more regulatory legal work.

"There are not a lot of regulatory reforms being talked about that I can think of that apply to public companies," says Latham's Davenport. "The banks are going to be regulated more heavily, but public companies are already so because of SoX, and I don't think there's a move to add to that."

That being said, just getting back to a base level of IPO activity and its complementary legal work will have most firms happy. Some see encouraging signs.

"[New offerings] will be bumpy and episodic, but I like what we're hearing from our clients," says Katten's Levin. "Many of the venture firms are looking for exits and in some cases the merger alternative is not available based on some issues in the credit markets."


A selection of the year's largest U.S. IPOs and the law firms that worked on them:

Primerica

Citigroup's life insurance unit Primerica filed for an IPO of up to $252 million on Wednesday as part of Citi's plan to shed assets outside its core banking business, Reuters reports. Skadden corporate finance partner Gregory Fernicola advised Citi and Primerica on the sale of 18 million Primerica shares to the public, while M&A partner Jeffrey Brill advised on the sale of another 17.2 million Primerica shares to private equity firm Warburg Pincus.

Citi and Duluth, Ga.-based Primerica also received legal counsel on the offering from Skadden tax partner Stuart Finkelstein, financial institutions cochair Robert Sullivan, and corporate partners Steven Fox and Alan Leet from Rogers & Hardin in Atlanta also provided counsel to Duluth, Ga.-based Primerica. Cleary Gottlieb Steen & Hamilton corporate partner Jeffrey Karpf advised underwriters led by Citigroup Global Markets.

MagnaChip

The U.S. unit of South Korean display drive manufacturer MagnaChip Semiconductor filed for bankruptcy last June, exited Chapter 11 in September, and announced plans for a $250 million IPO this week. Peter Astiz, global cochair of the technology sector practice at DLA Piper, is advising MagnaChip on the offering along with corporate and securities partners Khoa Do and Micheal Reagan. (Both Do and Reagan joined DLA in 2007 from Greenberg Traurig.) Latham's Davenport and corporate partner Keith Benson advised underwriters Goldman Sachs, Barclays, and Deutsche Bank Securities.

Sensata Technologies

The Dutch electronic sensor manufacturer, a subsidiary of chip maker Texas Instruments until it was acquired by private equity firm Bain Capital in 2006, raised nearly $569 million in the biggest U.S. IPO so far this year. Kirkland & Ellis corporate partners Dennis Myers and Jeffrey Richards advised Sensata on the offering. (Bain is a longtime Kirkland client.) Peter Handrinos, chair of the capital markets practice group at Wilmer Cutler Pickering Hale and Dorr, and Mark Borden, a former chair of Wilmer's corporate practice, advised underwriters Morgan Stanley, Goldman Sachs, and Barclays.

Symetra Financial

With Warren Buffett's Berkshire Hathaway holding a sizable stake in the Bellevue, Wash.-based life insurer, Symetra Financial raised nearly $365 million in its IPO in January, despite a tepid response for some early year U.S. offerings. Cravath, Swaine & Moore corporate partner William Whelan III advised Symetra on the offering, while Simpson Thacher & Bartlett corporate partner Gary Horowitz advised underwriters Bank of America/Merrill Lynch, JPMorgan Chase, and Goldman Sachs.

Notable offerings on foreign exchanges:

RUSAL

The Am Law Daily reported in January about Sidley Austin and Cleary Gottlieb's role advising Russian aluminum manufacturer RUSAL on its nearly $2.3 billion Hong Kong listing. British firm Ashurst, Russian's Egorov, Puginsky, Afanasiev & Partners, and China's Jun He Law Offices also advised RUSAL. Linklaters served as counsel to underwriters BNP Paribas and Credit Suisse.

China Pacific Insurance

A consortium led by U.S. private equity firm the Carlyle Group sought to raise up to $3.8 billion in a Hong Kong offering for China Pacific, the nation's third-largest life insurer. Asia Legal Business reports that Freshfields Bruckhaus Deringer partners Kay Ian Ng and Calvin Lai advised China Pacific along with Yang Xiaolei and Huang Xiaoli from China's King & Wood. Slaughter and May's Benita Yu, Sullivan & Cromwell, and China's Commerce & Finance Law Offices advised underwriters led by China International Capital Corporation (CICC).

CPP Group

CPP, a U.K. product insurer that provides protection from credit card and identity theft, priced its $687 million London IPO earlier this month. Legal Week reports that Ashurst corporate partner Anthony Clare led a team from the firm advising CPP on its London listing. Freshfields advised joint underwriters UBS and JPMorgan Cazenove, according to Legal Week.

A few other noteworthy offerings remain on the horizon:

KKR

The Am Law Daily reported earlier this month that Simpson Thacher, Sullivan & Cromwell, and Schiff Hardin had landed advisory roles on the long-awaited (and delayed) IPO by private equity firm KKR & Co.

New Look

U.K. fashion retailer New Look became the latest company to postpone its planned $1 billion IPO in early February, following Blackstone Group-backed travel reservation system provider Travelport, which hoped to raise $1.77 billion. Legal Week reports that Slaughter and May corporate partners Martin Hattrell and Simon Nicholls are advising the fashion retailer, whose major shareholders include private equity firms Permira Advisors and Apax Partners. (Apax holds a majority stake in the parent company of this site, ALM Media Properties.)

Clifford Chance cohead of European equity markets Adrian Cartwright is leading a team from the firm advising joint sponsors and bookrunners Credit Suisse, Deutsche Bank, and JPMorgan Cazenove, according to Legal Week.

Study Group International

Owned by Australian private equity firm CHAMP, Melbourne-based Study Group International provides programs that help students prepare for university studies in the U.S., U.K., and Australia. Study Group has reportedly tapped Baker & McKenzie for legal counsel as it explores a public listing to raise $540 million in capital.

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