Bank Lending and Acquisition Finance
Low-interest climate lures players to Germany
The economy is humming along and assets are solid, so it’s no wonder that, despite the ongoing lower base rates, more and more creditors are moving in on the German market – both for acquisition finance and corporate finance. Alongside the German top dogs, international institutes like BNP Paribas, HSBC, ING and SEB are ramping up their visibility in the German finance market.
In addition, PE and hedge funds, insurers and pension funds have discovered the lending market for themselves in their hunt for returns and are setting up their own credit funds. These often come into play when banks are not an option for regulatory reasons or for certain investment objects.
Unitranche financing is already established among funds as the preferred instrument for smaller transactions. When it comes to midsized deals as well, the gaps in finance are increasingly filled by alternative lenders. For larger volumes, however, the more liquid US capital market continued to set the tone in 2014/15.
Pressure to invest causing concern
Borrowers have drawn their own conclusions from these developments: financial investors, but also corporate treasurers and CFOs, are insisting even more than before on relaxed conditions, often successfully. On top of this, even mediocre investment objects secured huge prices – after all, investors are under enormous pressure to invest and can work relatively easily with a high proportion of debt capital. A number of lawyers therefore spoke of a potentially explosive mix that could easily lead to the next credit crisis.
Competition among financing firms heats up
But the competition has not gotten any easier in recent times. It is those firms with a strong pillar in advising banks that are suffering under extreme price pressure: as a number of lawyers report, the usual fee per deal has dropped at least 25 percent since 2010. Lots of established practices with a focus on banks are therefore attempting to gain a stronger foothold among alternative creditors, companies and PE sponsors.
In spite of these potential risks, the revived economy meant that it was not only the established firms that were profiting. For lots of small practices, growth efforts of recent years paid off, incl. Norton Rose Fulbright, King & Wood Mallesons and Jones Day.
After years of hesitation, Gleiss Lutz is now prepared to take the next step: it brought on board one of Germany’s most highly renowned finance partners in the shape of Dr. Eva Reudelhuber from Linklaters. Latham & Watkins caused a stir when it poached the former head of the Clifford Chance practice, Alexandra Hagelüken, thus sounding the attack on the leading firms.
Players such as Fried Frank and Reed Smith still expanding
It is this very mix that some of the new market players have set their sights on: another Linklaters lawyer went to Fried Frank Harris Shriver & Jacobson to build up a finance practice there. With a similar goal, Herbert Smith Freehills brought in an experienced partner from K&L Gates. Reed Smith meanwhile added a partner from Mayer Brown to its team while FPS Fritze Wicke Seelig landed the key financing partner from Taylor Wessing.
These moves underscored yet again how serious financial expertise is indispensable for transaction firms and all-round advisors today. At the same time, the influx of new players could well mean that competition heats up outside of advice to banks as well.
This subchapter discusses those law firms which advise banks and companies, not just on normal loans but also on acquisition finance. The advisory work of law firms in all forms of debt finance, for example transactions initiated by private equity houses, is of particular interest here.