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Page 1 of 2  Law firms around the world take AIM at the United Kingdom as capital markets drive new business.
Ten short years ago, Canadian firms were either closing their branch offices in London or downsizing their operations there. Now everything is on the up and up, and Canadian firms are angling to get their share of the capital markets, in which London has emerged as a major player.While New York may seem the more natural destination for North American companies looking for capital and law firms looking for work, London has some unique advantages that are attracting investment and interesting projects from around the world.
The main factor driving London’s resurgence is the development of the Alternative Investment Market (AIM), which is the London Stock Exchange’s international market for smaller growing companies from any country or industry sector.
Increasingly, it is the place where non-U.K., non-U.S. companies are choosing to do their initial public offerings. Since its inception in 1995, 2,500 companies have joined the AIM, raising more than ÂŁ34 billion through initial public offerings and further capital raising. The lower level of regulation is particularly attractive to companies anxious to get away from Sarbanes-Oxley-type oversight.
“There isn’t a day goes by without an article about the London-New York rivalry,” says Robert Brant of McCarthy Tétrault LLP’s London office. “Londoners are pretty pleased with themselves, and never before have Canadian companies and advisers been so involved in the London capital markets.”
Al Gourley of the newly merged Fasken Martineau Stringer Saul LLP in London, speaking from Johannesburg, agrees that the outlook is bright. “Statistics on the AIM market in particular are astounding. It’s aggressively growing and competes head to head with the Toronto Stock Exchange.” In fact, there is often an overlap with the TSX. “Every two out of four companies that we take public do their initial public offerings on the AIM and the TSX concurrently.”
British corporate lawyer Clive Hopewell of Charles Russell LLP, the firm that has represented the Canadian High Commission in London for more than 100 years, has seen a large increase in the number of Canadian companies looking to raise capital in London in the last five years, mainly from the booming resource sector.
Canadian investment firms landing nomad status
Hopewell’s firm did the first joint listing on the TSX and AIM with YM BioSciences Inc. in 2002 and acts for Canaccord Capital, a Canadian investment dealer that has grown enormously since attaining nominated adviser (nomad) status in 2000. Nomads are entitled to sponsor a company onto the AIM.
“One factor that attracts junior money companies is that it is easier to get a bigger profile in London,” says Hopewell. “In the U.S., a company may not have sufficiently large market capital to be attractive to investors. It’s also attractive for companies to tap into U.K. institutional investors. In Canada there is a bigger proportion of retail investors, which have more liquidity, and it’s good to get a balance.” Hopewell points out that because of the number of Canadian companies with listings in the U.K., there are also many more cross-border mergers and acquisitions.
There is also a growing Canadian presence among pension funds and banking interests. Canadian investment brokers are actively vying for nomad status and the enormous rewards that it offers. “The Royal Bank of Canada (RBC) have had a London office for some time but they were not nomads,” says Gourley. “In fact, until recently there was not a single Canadian bank that had nomad status. Now RBC is a nomad and a broker. Westwind Partners (a research and investment banking firm based in Canada) is a broker and is trying to become a nomad. Haywood Securities, a mid-level investment bank, is a broker, and GMP Securities recently announced a major deal — a strategic alliance with nomad and broker Panmure Gordon & Co.”
This is good news for lawyers. In any AIM deal, someone has to represent the nomad and someone else, the company. The multibillion-dollar deals are the domain of the British law firms, known as the elite “magic circle” firms, but there is still plenty of work for the second-tier and foreign law firms. Being Johnny-on-the-spot is an advantage in this market, but the Canadian outposts still have to work hard for their market share. “No one’s offended by Canadians,” says Gourley. “It’s not a nationality that is considered offensive or aggressive, but it doesn’t open any doors. The relevance of a law firm to a client is the ties with brokers who can help raise finance.”
Brant agrees. “Canada is not really on the radar screen of people in London and it’s very hard to make it in one of the world’s most competitive cities. There are over 100 domestic U.K. firms in London doing similar work to us as well as foreign firms. It’s important to find a niche you think you can service. Our niche is corporate finance, equity [and] debt finance, mergers and acquisitions. The transactions generally involve Canada in some way. Our bread and butter is practising English law for Canadian clients.”
Tom Vowinckel, partner at the London office of Stikeman Elliott LLP, says his firm’s ability to offer sophisticated tax advice gives it an edge. “AIM is not a prescribed stock exchange for the purpose of Canadian tax law, so non-Canadians who invest in non-public Canadian companies are exposed to Canadian taxes. They require clearance certificates and must file a Canadian tax return, which is impractical.” Vowinckel develops structures that engineer Canadian companies so they become public companies. “We were the first to develop these structures and bring them to the market.”
The London office of Fasken Martineau was designed to catch U.K. and European business seeking to enter the Canadian market or faced with a Canadian legal issue. That focus has changed with its merger with Stringer Saul. “Now we’re looking for U.K. work from every direction,” says Gourley. “Faskens’ sweet spot is $20 million to $1 billion in finance.”
While the Canadian law firms in London often give specialized Canadian advice to the magic circle firms, they do not have a monopoly on all work with a Canadian connection. “Listing on AIM is a twofold process — complying with regulatory requirements in England to list the company, and doing the due diligence to review the information in the admission document,” says Vowinckel. “It is more efficient to do the due diligence out of Canada with Canadian counsel.”
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