For three months last spring, more than 100 lawyers worked around the clock on what turned out to be the largest private equity transaction in Canadian financial history: the $51.7 billion purchase of Bell Canada Inc. by Teachers’ Private Capital and two U.S. private equity investment firms. This deal capped more than a decade of year-over-year growth in private equity across North America.
Cameron Koziskie, who worked on the deal, says the pace was frenzied. "Time frames can be tight. Private equity requires a lot of work in a short time. Inevitably there will be one partner that is the lead partner—the quarterback of the transaction—who will surround himself or herself with a team made up of two or three smaller teams. One of these teams is going to be acting on the purchase and sale side (due diligence, purchase and sale agreement), another will be dealing with the debt financing arrangements, and then there may be a third team dealing with the shareholder going-forward arrangements. From a time-frame perspective, the reality is the deals will take anywhere from six weeks to three months. During that time, there will be busier times than others, but as we get closer to closing, people are there around the clock. There is lots of communication within the teams. You eat when you can. Only when it’s over, that is when you finish the deal, do you try to return your life to a bit of sanity. Sometimes it works. Sometimes you’re right on to the next deal. People within the big firm environment recognize when their colleagues have been swamped, and they try to give them an opportunity to catch their breath."
Many lawyers noticed a significant slowdown in private equity in the final months of 2007. Says Cameron: "There certainly was a flurry of activity in the last couple of years. With the credit crunch, that flurry has slowed down. But it has not stopped deals from happening. If you try to divide the market up, the mega deals are on hold—the credit crunch has put a damper on them for the foreseeable future. But when you get more into the middle-market deals, or even the smaller market, deals are still happening. Money is still available both from the equity and debt side."
“I think the private equity boom is still in an early phase,” says Phil Brown. “Expect smaller deals to pick up next year with less leverage and more equity. Bigger deals with ‘covenant light’ terms are not likely to come back, if at all, for a long time, but bigger deals will return as soon as sellers adjust to lower prices and private equity agrees to put more equity in deals."
As for private equity being a specialty area of law, Cameron says, "I think there are very few PE specialists in Canada. But even in my own practice, I do 80% of my work on private equity transactions, and it's been like that for years. Most people who practise in this area are corporate lawyers. Torys is a bit unique in that way. We truly have people who are PE lawyers. We have consciously tried to allow people to devote that level of time to PE."
Phil agrees. "Private equity has been a specialty area in Canada for decades and continues to grow, including expanding to mid-size firms. Many of the deals are cross-border, involving U.S.-based private equity players who bring with them U.S. counsel. They usually have an important role in these deals for the bigger private equity players and work alongside Canadian counsel to get the deals done. The legal work tends to expand with private equity deals, not only because the initial deals tend to be complex, but also because the private equity players will want to exit the businesses they buy, in three to seven years typically. That brings with it future sale transactions and often initial public offering deals."