17/04/2020 - 11:09

Corporate lawyers pivot to new priorities

17/04/2020 - 11:09

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Perth’s top corporate lawyers have been busy helping their clients navigate the fallout from COVID-19.

Corporate lawyers pivot to new priorities
Michael Bowen says the main concern for his clients is their ASX disclosure obligations. Photo: Gabriel Oliveira

Perth’s top corporate lawyers have been busy helping their clients navigate the fallout from COVID-19.

Michael Bowen speaks for many of his peers when he reflects on the past few years.

“It’s been a very good market for corporate lawyers over the past three years,” the DLA Piper partner said.

Gilbert + Tobin’s Justin Mannolini shares his assessment.

“We had seen pretty good year-on-year growth since 2016, which looking back was definitely the low point,” Mr Mannolini told Business News.

The relatively buoyant trading conditions were reflected in the BNiQ database, which recorded $5.8 billion worth of Western Australia-related corporate finance deals in the March quarter.

But that’s old news for corporate lawyers who have swung in to support their clients deal with rapid changes in the regulatory and economic environment.

The fallout from COVID-19 restrictions has been reflected in deals that have been cancelled or repriced.

One of the first deals to be scrapped was Downer’s proposed sale of its mining division.

Perth-based contractor Perenti Global was seen as the most likely buyer.

Another deal to fall over was the plan by ASX-listed biotech OBJ to pay $85 million for Danny Pavlovich’s Perth-based dietary supplements business, Nutrition Systems.

That was canned after OBJ said it was unable to raise the required funds on the agreed terms and timeframe.

Another deal left at the starting gate was the $115 million sale of Perth-founded Liquefied Natural Gas Ltd to private Singaporean company LNG9.

A ‘live’ deal facing a shaky future is the $120 million sale of Pioneer Credit to global private equity player Carlyle.

Pioneer has accused its suitor of trying to push down the price to a very low level or abandon the deal altogether.

As well as these examples, there have been multiple small capital raisings that have been cancelled or repriced.

And then there were the prospective deals that were in the works and may never see the light of day.

Mr Bowen said he had different priorities right now.

“Without doubt, the number one issue facing our clients is continuous disclosure,” he said.

“The ASX has no carve-out for pandemic issues and the consequences can be very far reaching.”

Many listed companies have responded to the uncertainty by withdrawing their earnings guidance.

Mr Bowen said his firm was advising clients on new ‘safe harbour’ provisions, which allowed companies to continue trading at times of financial stress.

He has also been helping clients understand the new guidance on insolvent trading, one of many regulatory changes designed to help businesses during the pandemic.

“The words on face value are simple and plain but what does it mean in practice?” Mr Bowen said.

“The other issue we are seeing is capital raising opportunities that are arising right now.

“It’s really volatile.”

Mr Bowen’s firm, DLA Piper, topped the BNiQ league tables for the year to March 2020 as the top adviser on both mergers and acquisitions and equity capital markets transactions in WA (see table).

It advised on 17 M&A deals and 27 ECM deals, servicing companies ranging from junior explorers and technology firms through to large miners such as Saracen Mineral Holdings and Resolute Mining.

“We had a good year last year,” Mr Bowen said.

“We’ve kept some of that momentum up.”

He said strong relationships built up over many years were key to success in the Perth market.

“You need to be the trusted adviser they can rely on.”

Added to that was the backing of a global brand like DLA Piper, which Mr Bowen said was especially valuable when he was doing outbound work for local clients.

Justin Mannolini is surprised markets are still functioning effectively. Photo: Attila Csaszar

Mr Mannolini said the first response from clients to the pandemic was to focus on the safety of their people; that was followed by operational updates to ensure they could continue operating profitably.

“With everybody focusing on those priorities, it’s logical that deal making is a long way down the track, and there is so much uncertainty it will be a while before people focus on deal making unless they have to,” he said.

Mr Mannolini said the rapid policy reaction had helped markets continue functioning.

“There has not been a collapse of liquidity,” he said.

“The system seems to have been kept afloat amazingly well, certainly better than I expected.

“Markets are still trading, they are still functioning, people that need capital can still raise it, at a price.”

Ashurst partner Roger Davies said the number one question from his clients was how long the current restrictions would go on.

That’s not easy to answer, nor are some of the other questions his clients have raised.

“For boards, there have been immediate concerns around how to hold their AGM,” Mr Davies said.

”We’ve given lots of advice on withdrawal of earnings guidance and how to deal with continuous disclosure.

“There have been lots of questions around interruptions of contract and force majeure.”

He said many transactions people had been working on had been put on hold, but he saw opportunities on the other side.

“Will it put the brakes on M&A for a while? Absolutely it will,” Mr Davies said.

“There will be some great buying opportunities. Some of the bigger companies that have plenty of cash and are willing to be nimble will pick up some well-priced businesses.”

Herbert Smith Freehills partner Simon Reed said the regulatory changes adopted by the likes of the Australian Securities and Investments Commission had been helpful.

“It’s relieving some of the pressure on those businesses that do need to raise capital,” Mr Reed said.

“It’s not fundamentally shifting things but it all helps.”

Mr Reed is hopeful that regulators learn from this experience.

“I’d like to see that reassessment of regulatory impact continue as the deal flow begins to pick up,” he said.

“It’s important they take a measured approach when regulating what might be a fragile recovery.”

Mr Reed said there were companies on the lookout for opportunities.

“I think there are people already out there who are well capitalised and don’t rely on debt markets who do see buying opportunities,” he said.

“They are still undertaking the analysis.”

Allen & Overy partner Geoff Simpson maintains a positive longer-term view for the energy and resources sectors, which underpin his firm’s local practice.

“I can’t really see that being impacted in the medium to long term,” he said.

Mr Simpson said the mining sector was looking very solid, helped by the buoyant price for commodities such as iron ore and gold.

In the oil and gas sector, he said project proponents tended to look through short-term price cycles, although the recent fall in oil prices was unusually steep.

Mr Simpson said A&O’s international network provided a big boost.

“What helps us tremendously is the offshore work,” he said.

“It adds a lot to the nature of our practice.”

Mr Simpson said he was looking to add restructuring to the corporate, litigation and banking practices in A&O’s Perth office.

“We’re always looking to grow; that is an obvious area.”

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