Investment in innovation, the rapid growth of companies, the rise of cyber security and the uptick in high-value M&A meant the technology sector provided plenty of work for law firms in 2015.
Using data from The Lawyer Market Intelligence (LMI) this report identifies the biggest deals in the sector in 2015 and the law firms that advised on them, pinpoints industry trends and looks at the panel places up for grabs.
A hive of M&A activity
M&A has seen a global resurgence and the technology sector is no exception. The sector has seen a large number of M&A deals and these are becoming increasingly high-value in nature, due in part to the development of new types of technology and the entry of technology companies into new and profitable markets.
According to LMI data most of the highest value technology-related M&A deals in 2015 took place in the US – the market that continues to set the pace. The result was a plethora of work for US firms looking to cash in on a market that has become second only to the pharmaceutical sector in terms of M&A.
The biggest technology-related M&A deal of 2015 – and considered one of the biggest tech deals of all time – was the $67bn (£46bn) acquisition of computer storage seller EMC by Dell in October 2015. Dell and EMC are set to create the world’s largest privately controlled, integrated technology company when the deal closes at the end of 2016.
Simpson Thacher & Bartlett advised Dell on the deal, led by partners Richard Capelouto, Christopher May and Jennifer Hobbs, while Wachtell Lipton Rosen & Katz partners Steven Rosenblum and Gordon Moodie advised Dell owners Michael Dell and MSD Partners.
Skadden Arps Slate Meagher & Flom acted as external advisers to EMC, with a Boston and New York-based corporate team including partners Margaret Brown, Peter Atkins and Laura Knoll.
The Dell deal surpassed the $37bn acquisition of US wireless chip manufacturer Broadcom in May 2015 by Singapore-based maker of semiconductors Avago Technologies. Latham & Watkins advised Avago on the deal, led by Silicon Valley partners Christopher Kaufman, Anthony Richmond, Luke Bergstrom and Chad Rolston. Meanwhile Broadcom turned to Skadden and corporate partner Kenton King.
In February 2015 Skadden won a lead role, this time advising US telephone company Frontier Communications on its acquisition of the wireless operations of US-based broadband and telecoms company Verizon Communications for $10.54bn. Debevoise & Plimpton partners Jeffrey Rosen and Michael Diz advised Verizon.
In the same year Verizon also acquired AOL for $4.4bn. Weil Gotshal & Manges co-chair of transactions Frederick Green advised Verizon, while Wachtell Lipton founding partner Martin Lipton and corporate partner David Shapiro advised AOL.
The end of 2015 saw Weil corporate chairman Michael Aiello advise Intel in its $16.7bn acquisition of chipmaker Altera. US-based Altera turned to Wilson Sonsini Goodrich & Rosati with a team that included corporate partner and head of the firm’s M&A and private equity practice Martin Korman.
“The top tech-related M&A deal of 2015 – and one of the biggest of all time – was the £46bn acquisition of computer storage seller EMC by Dell”
Outside the US Skadden advised Nokia in its €15.6bn (£11.2bn) acquisition of French telecoms company Alcatel-Lucent. The Skadden team was led by Scott Simpson, the firm’s co-head of global transactions, Armand Grumberg, head of the firm’s European M&A practice, and London-based corporate partner Michal Berkner.
Sullivan & Cromwell advised Alcatel-Lucent on the deal, led by Rich Morrissey in London and Gauthier Blanluet in Paris, while Latham Paris-based partners Patrick Laporte and Pierre-Louis Cléro advised Alcatel-Lucent’s board of directors.
Mobile M&A
In the UK the rapid increase in the use of smartphones and mobile-related services saw the mobile sector dominate technology-related M&A in 2015, with companies vying to become the market leader.
In January 2016 the Competition & Markets Authority approved BT’s £12.5bn acquisition of EE, a joint venture between Deutsche Telekom and Orange – and the UK’s largest mobile phone network. For BT and EE the deal presents the opportunity to dominate the UK consumer telecoms market and enables BT to supplement its broadband, WiFi and fixed-line platforms.
the biggest tech acquisition in UK history
Advising BT on the biggest acquisition in UK technology history was Freshfields Bruckhaus Deringer co-head of global M&A Ben Spiers, antitrust partner Rod Carlton and corporate partner Natasha Good. Deutsche Telekom turned to Clifford Chance M&A corporate partners Tim Lewis and Joachim Fleury, while Orange turned to Norton Rose Fulbright corporate partners Oliver Stacey and Chris Pearson.
Meanwhile, in January 2015 Spanish telecoms provider Telefónica sold the UK’s second-largest mobile operator O2 to CK Hutchison Holdings (formerly Hutchison Whampoa), the Hong Kong-based investment holding company and owner of Three, the telecoms and internet service provider.
The $15bn deal, which is still subject to European Commission approval, would create the UK’s largest mobile phone operator, surpassing EE and Vodafone. Herbert Smith Freehills corporate partner Gavin Davies advised Telefónica, while CK Hutchison Holdings turned to Linklaters and Freshfields. Baker & McKenzie acted as additional advisers on competition aspects.
Determined not to be left behind, Vodafone has been busy extending its reach across Europe. In October 2015 the mobile operator entered into an agreement with Russian mobile operator Mobile TeleSystems to extend their strategic partnership agreement with the intention of rolling out 3G connectivity and developing a number of services in the Ukrainian market under the Vodafone brand.
Most recently, in February 2016, Slaughter and May together with NautaDutilh advised Vodafone on its joint venture with Liberty Global, the UK-based telecoms and television company, to provide video, broadband and mobile services in the Netherlands.
Leading for Slaughters on the €1bn deal were London-based corporate partners Roland Turnill and Susannah Macknay, while chair of NautaDutilh’s TMT group Piet Sippens-Groenewegen advised Vodafone in Amsterdam. Magic circle duo Allen & Overy (A&O) and Freshfields, led by the latter’s corporate partners David Sonter and Philip Richards and tax partner Peter Clements, advised Liberty Global.
In addition to building up its European portfolio and in order to remain competitive in the UK mobile market Vodafone has also been obtaining access to fibre connectivity. In October 2015 the company awarded a contract to CityFibre Infrastructure Holdings under which the UK builder, designer and operator of ‘pure fibre’ networks will provide fibre connectivity to Vodafone’s UK network.
Cloud chasers
LMI data indicates that transactions involving cloud-based software formed the basis of a number of tech-related deals in 2015. As a result of facilitating collaboration, enhancing security and boosting flexibility cloud computing is becoming increasingly relied upon by organisations of all sizes as a way to enhance productivity.
Accenture shored up its position as the leading enterprise in cloud services in 2015. In September the management consulting, tech services and outsourcing company agreed to acquire Cloud Sherpas, a provider of cloud advisory and technology services to leading brands including Google and Salesforce, as part of a deal estimated to be worth around $350m. Kirkland & Ellis, led by New York-based corporate partner Sarkis Jebejian, advised Accenture, while Cloud Sherpas turned to DLA Piper corporate partner Eric Grossman. Prior to this, in July 2015 Accenture acquired full ownership of Madrid-based cloud consultancy Solium in a bid to strengthen its cloud capabilities in Europe.
Cyber security
According to LMI data one area of technology enjoying growth in terms of importance and investment is cyber security. From Apple to TalkTalk and from financial institutions to governmental departments, high-profile cyber attacks have pushed the issue of cyber security to the top of the agenda for organisations and businesses.
LMI data shows that a large number of transactions involving cyber security have involved organisations strengthening their security practices and frameworks. In March 2015 BT integrated technology from Darktrace, one of the world’s fastest growing cyber threat defence companies, to deliver cyber threat detection and intelligence services in its operations.
LMI data additionally shows that much M&A activity centred on cyber security has involved big players in the market acquiring small and emerging rivals. In May 2015 AVG Technologies, the security software company, as part of a strategy to expand its security portfolio, acquired Privax, the provider of desktop and mobile privacy services. White & Case advised the shareholders of Privax, led by London-based partner Ian Bagshaw.
“Cyber security management is likely to provide a continuing deluge of work for law firms”
In April 2015, US defence contractor Raytheon entered into a joint venture with Vista Equity Partners, the US private equity firm to create a new cyber security company. The joint venture brought together Websense, the US computer security software company and portfolio company of Vista Equity Partners, and Raytheon Cyber Products, a web security-focused business of Raytheon.
As part of the joint venture Raytheon acquired Websense for $1.9bn, while Vista Equity invested $335m to take a 19.7 per cent stake in the new company named Forcepoint. Morgan Lewis & Bockius partner Mike Conza together with Steptoe & Johnson partner Steven Barber acted as legal advisers to Raytheon, while Kirkland & Ellis, led by corporate partners Daniel Wolf and Joshua Zachariah, served as legal adviser to Vista Equity.
Following this, in November 2015, Morrison & Foerster advised Global Defence and National Security Systems (GDEF) in its $165.5m acquisition of STG, the cyber security provider to the US government which was advised by US firm Holland & Knight.
In other major cyber security M&A deals Microsoft acquired Adallom, the Israel-based cloud security company, for $320m in September 2015 while in June Cisco, the US technology company, acquired cloud computing security company OpenDNS as part of a $635m deal. Cooley, led by partner Craig Menden, advised Cisco on the transaction, while Fenwick & West corporate partners Greg Roussel and Michael Brown advised OpenDNS.
The issue of cyber security shows no sign of losing momentum and companies will look to exploit this ever-expanding market by adding to their product platforms to gain prominence in a highly competitive field.
Furthermore, with cyber attacks becoming more technically sophisticated in nature, cyber security management is likely to provide a continuing deluge of work for law firms in the tech sector with plenty of litigation disputes, data protection breaches and issues arising from corporate governance.
Divestments
LMI data shows that in addition to increased M&A activity the tech sector is seeing higher levels of divestment. By placing more emphasis on portfolio management and disposing of assets that no longer meet strategic needs tech companies can become more streamlined and focused on markets where they have a dominant position.
Among notable divestments in 2015 Dixons Carphone sold mobile phone retailer The Phone House Portugal to telecoms retailer and wholesaler Digital Place. In the same year Dixons Carphone entered into an agreement with Relevant Holdings, the Dutch operator of mobile retail stores, to dispose of its 83 per cent stake in telecoms company The Phone House Netherlands. LMI data shows that Dixons Carphone has carried out 10 divestments since 2012, primarily in central Europe, as the company looks to shed loss-making operations.
Also undertaking regular reviews of its business portfolio and operations is BAE Systems. In February 2013 the UK-based provider of tech-led defence, aerospace and security solutions sold its 26 per cent stake in joint venture Defence Land Systems India with Mahindra & Mahindra, the Indian carmaker, while in August 2014 Norton Rose Fulbright advised the company in the sale of its South African business to Denel, the South African state-owned weapons maker.
Faced with defence spending cuts by Western governments BAE is undertaking a strategic assessment of some of its US operations, with an option to dispose of or downsize these businesses.
With technology innovation moving at a rapid pace a technology company’s product portfolio and business model is always at risk of being left behind. As a result it has become important for technology companies to plan, and part of this is assessing their portfolios more regularly and considering what impact any future technology will have on profitability.
For law firms it has become increasingly important to demonstrate that they can continually operate at the forefront of the sector. Such firms must maintain an in-depth understanding of technological change and the developing legal issues associated with this change.
Panel reviews
According to LMI data the vast majority of technology companies favour a small number of external advisers. Microsoft, Dixons Carphone and Siemens all turn to 10 or fewer external advisers while Liberty Global, Deutsche Telekom, Dell and Hewlett Packard make do with five or less. LMI data additionally shows that the sector is dominated by magic circle firms together with top-tier US and London-based firms, with A&O, Bakers, Cooley, Covington & Burling, DLA Piper and Osborne Clarke among the most popular firms advising tech companies.
LMI data also shows that some tech companies choose top-tier firms but supplement these with a network of regional and niche firms. BT, which has the biggest roster of external advisers in the sector, turns to Bird & Bird, CMS Cameron McKenna, Freshfields, Reed Smith, Olswang and Trowers & Hamlins together with smaller and more niche firms such as Carter-Ruck, Sheridans, Wiggin and Wright Hassall. Also adopting this approach is BAE which, in addition to A&O, Linklaters, Slaughters and other top-tier firms turns to regional player Blake Morgan. Vodafone, General Electric and Pace adopt a similar blueprint.
One panel review expected in 2016 is tech giant Hewlett Packard (HP) with the provider of products, software, solutions and services expected to rejig its EMEA and global panels this year after reviewing both in 2013 and 2014 respectively. Bakers and Freshfields sit on both panels and are joined by Bird & Bird on the EMEA panel, while Gibson Dunn & Crutcher sits on HP’s global panel.
Outside these panels LMI data shows that HP has turned to A&O and Skadden, which both recently advised HP in the sale of its 51 per cent stake in its China-based data networking business to China’s Tsinghua Holdings as part of a $2.3bn deal. Leading for A&O was Beijing-based corporate partner Victor Ho.
Colt Group, the provider of business-to-business information and communication services, is expected to review its sole and principal legal adviser Bakers in June 2016. The firm secured a one-year extension in June 2015 ahead of a planned review of how the legal team appoints outside counsel. The firm originally won the mandate in 2012 for a three-year period.
However, the review will be carried out without longstanding general counsel Robin Saphra who was replaced in January 2016 by company secretary Caroline Griffin Pain. Saphra joined Colt in 2005 and oversaw a big increase in the size of the in-house team. LMI data shows that other firms used by Colt include DLA Piper, Greenberg Traurig Maher and Slaughters.
Following a review in July 2014 Vodafone is expected to revamp its general panel in 2017. The mobile network has a roster of seven firms including DLA Piper, Eversheds, Linklaters, Norton Rose Fulbright, Olswang, Osborne Clarke and Slaughters. The in-house team is headed by former Mayer Brown lawyer and group general counsel and company secretary Rosemary Martin, who has been at Vodafone since 2010. In that time Martin has headed up two reviews, the first of which was in 2011 and saw the company’s roster cut from 30 to 10 firms. The second review in 2014 saw Eversheds join the telecoms giant’s roster for the first time, while Linklaters maintained its position as main corporate counsel.
Most of Vodafone’s activity stems from M&A and litigation, the former primarily Europe-based in the past year. Within this activity Vodafone demonstrates a willingness to turn to smaller firms – a trait Martin adopted while general counsel and company secretary at news agency Reuters. Outside its general panel LMI data shows that in the past the company has turned to Shakespeare Martineau for corporate matters, while Shepherd & Wedderburn together with Towerhouse, the boutique competition and regulatory firm, have both acted for the company in litigation matters.
In March 2016 Siemens, the largest engineering company in Europe, removed Reed Smith from its legal panel and replaced it with Addleshaw Goddard, which joined Eversheds and Osborne Clarke on the three-strong panel last reviewed in 2013. Although operating a slim panel LMI data shows that the company has also sought advice from Bakers, Berwin Leighton Paisner, Linklaters and Slaughters together with German firms Gleiss Lutz and Hengeler Mueller.
Also undertaking a review in early 2016 was ARM Holdings, the Cambridge-based semiconductor and software design company which, in January, revealed its inaugural legal panel, with DLA Piper, Eversheds and Mayer Brown among the firms to win spots on the 12-firm roster. DLA Piper and Mayer Brown were appointed as principal advisers on worldwide corporate and M&A transactions alongside Bird & Bird, Fenwick & West and Martin Hu & Partners. Eversheds, Fieldfisher and Mills & Reeve also secured places on the panel, the review of which was undertaken by managing counsel Struan Britland supported by general counsel Philip Davis. ARM also retained US firms Wiley Rein and Winston & Strawn for patent litigation matters together with longstanding corporate advisers Davis Polk & Wardwell and Slaughters.
Although dominated by magic circle and top-tier London firms, unlike others sectors technology provides plenty of opportunities for smaller, niche and regional firms. The cost-effectiveness and growing reputations of these smaller firms means they are now seen as an attractive proposition for technology companies in specialist and complex day-to-day legal matters.
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