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 £34 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.”
Working hand in hand
Laurie McFadden is a Canadian-born partner of Freshfields, one of the magic circle British firms. His contact with Canadian firms usually comes when they represent one party to a consortium, and Freshfields represents the consortium as a whole. “It is a regular feature to be feeding work to the Canadian firms. Where the firm is located depends on the case. If it’s just advice we need, we call the people we know in the London offices. Other cases may go directly to Toronto or other parts of Canada.”
Charles Russell LLP also works closely with firms in Canada, but prefers not to have exclusive relationships. “On a typical listing we work alongside the Canadian firm,” says Hopewell. “We handle the aspects of the U.K. listing and the due diligence is done by the Canadian lawyer for the company. If it benefits the client to use the local lawyers, we encourage that.”
Lawyers in demand
London is also a good place for Canadian lawyers to sell their skills to prospective employers. International legal recruiter Jonathan Marsden says that in recent years he has been retained by Clifford Chance, Linklaters, Allen & Overy, Simmons & Simmons, and White and Case to co-ordinate their large-scale recruitment efforts in Canada. McFadden confirms that Freshfields also looks to Canada for good legal talent. Some recruits stay for only a few years, but take back a valuable compressed experience. “Freshfields offers concentrated exposure to deal after deal after deal,” he says.
In contrast to the magic circle and silver circle recruiting endeavours, the London-based Canadian firms admit to doing most of their recruiting in the U.K. and sending the Brits to Canada for short crash courses in Canadian law. “It’s hard to recruit good people to small firms in a city where there are so many options,” says Brant. “You need someone interested in a smaller office, someone entrepreneurial.”
It is not hard to get admitted in the U.K. if you are from a common law jurisdiction. There are only two exams to take, in ethics and accounting. “London is a melting pot of legal talent,” says Vowinckel. “If you hail from a common law country with sophisticated law schools, the legal education transposes easily. You’re trained in the basics.”
There is still a great deal of local knowledge to absorb. “Besides contract law — which was written by Lord Denning and friends — the legal regime is totally different,” advises Gourley. “You have to start from scratch and learn the European prospectus, the AIM role in the FSA (the Financial Security Authority, which regulates
providers of financial services in the U.K.), and the workings of takeover panels. You have to commit.”
Gourley came over in mid-August 2003 and worked hard to build up his contacts. “I already acted for one or two companies that had ties to Europe, and I continued to act for them. I got other introductions from the firm’s global mining group, which has a strong web of relationships in Europe. Eventually you bump into people in the capital business — nomads and brokers. It takes time to build a web, and you’ve got to do good work, or no one comes back.”
The London-based lawyers all agree that while there are differences in the work culture, generally the practice of law is Americanized, with the full use of technology. Certain courtesies are more prevalent, such as a desire for personal meetings rather than conference calls and more gentlemanly behaviour from lawyers. “One difference between European lawyers and North America lawyers is the perspective on business advice,” says Gourley.
“American and Canadian lawyers are very good at getting immersed in a firm and giving pragmatic, strategic business advice at the board level. A British client is surprised when they first see that sort of advice.”
Because of the time it takes to settle in (three years according to Brant) and to build up a web of contacts, the London offices of Canadian firms have changed their policy of rotating senior players for two- or five-year stints. They are now staying indefinitely, although at middle and junior levels there is still some rotation occurring.
Gourley says his umbilical cord to Canada has been cut and admits to being excited about the future. He expects his firm to expand by up to 30 lawyers in the next few years. “There has been phenomenal growth on the AIM, with substantial amounts of mining finance, and I bet the minute the mining economy collapses it will shift to high tech.”
Costs are high
Despite the positive business forecast, Brant is not expecting other Canadian law firms to set up offices. “It’s such an expensive place to start up, with all the costs and connections. I’d be surprised if they contemplated it.” Instead he sees the larger Canadian firms nurturing relationships with well-placed British firms.
With a global outlook, a law firm can use London as a platform or an open door to work that need not have any local connection. “We have tended to take on areas that are international by definition, such as mining,” says Vowinckel. “Our London office is well-positioned to take on mining projects with no connection to Canada.
Similarly, in offshore trust planning, we not only represent high net worth individuals going to and from Canada, but also South America and other countries.”
In fact, the Canadian lawyers interviewed regard themselves as global lawyers who happen to be based in London — taking advantage of its magnet-like ability to attract liquidity and make all deals seem possible.