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Mergers and acquisitions practices are flying in the face of a credit crunch, but not all corporate attorneys agree as to why or for how long. The downturn in the economy has undoubtedly had an effect on the M&A market, attorneys agree, but some just see a shift in the financing rather than a slowdown. Private equity firms are dropping out of deals and strategic buyers are taking their place, one attorney said. Another said strategic buyers are biding their time to see what the market does before throwing big money into a deal. Most agree that the middle-market deals are here to stay as they have an easier time finding financing, while the mega-deals are taking a hiatus. The market just might turnaround, however, before any major impact can be seen. “The credit markets are, at least thus far, recovering much quicker and much better than initially expected,” according to longtime M&A attorney G. Daniel O’Donnell of Dechert. The Legalhas received several notices in the past few months of local firms working on large-dollar deals, some that were initiated before the credit crunch and others that are just in the beginning stages. Kleinbard Bell & Brecker, a 21-lawyer general services firm in Philadelphia, has represented SunCom Wireless Holdings since 1997 and members of its management team in two prior start-up companies. When the company’s general counsel left at the end of 2006, SunCom knew it was looking to go up for sale and didn’t want to hire someone to fill the spot. Kleinbard Bell stepped in and even brought attorneys to SunCom’s Berwyn, Pa., offices four days a week, Managing Partner Howard J. Davis said. Kleinbard Bell progressed from handling tower leases and operating agreements to working alongside Wachtell Lipton Rosen & Katz in SunCom’s $2.4 billion merger deal with T-Mobile USA. Hogan & Hartson handled the regulatory matters. Davis, partner Thomas H. Speranza and of counsel Anna M. McDonough started working on the sale process in the spring of 2007 and started to hold auctions in late May, early June. Davis said there were close to 30 bidders ranging from private equity companies to strategic buyers in the telecommunications industry. In the middle of the summer, right around the middle of the auction, the market had a “melt-down” and the private equity bidders became less interested in the deal, Davis said. “There was clearly a challenge when the credit market ran into difficulty,” Davis said. While some of the private equity firms stayed in the auction through the second round, he said the auction remained very active because of the strategic buyers. Several bidders were still around just a few days before the agreement was signed on Sept. 16, Davis said. The deal is expected to close in the first half of 2008. “To the extent there are strategic buyers available for targets, the deal market is still active,” Davis said. It is much more challenging, however, for financing buyers to complete the deals they were before the credit problems hit this summer, he said. While Davis said he doesn’t think the $100 million deals are going anywhere, firms looking at the larger deals will have more trouble finding financing. Dechert partner G. Daniel O’Donnell would agree there. O’Donnell has been involved in the M&A markets for more than 30 years and said there is no question that a credit crunch has occurred. He said the $10 billion deals are definitely going to slow down. “They aren’t happening and they won’t happen until the market gets readjusted,” O’Donnell said. The middle-market deals � between $250 million and $1.5 billion � will slow down, but not as severely, he said. It will probably be the first quarter of 2008 that the market settles down one way or another, O’Donnell said. To the extent that the market is seeing multibillion-dollar deals close, those are deals that were initiated before the credit crunch hit, he said. “The deals we’re closing are large deals that were in the pipeline before August and a fair number of reasonable, upper-middle market [deals],” O’Donnell said. “The very biggest deals are shut down.” O’Donnell isn’t so sure the strategic buyers are going to come in and keep the market moving. He said those buyers are smart enough from a strategic standpoint to learn from the sufferings of the private equity firms in this market-lull. He said he thinks they will sit on the sidelines and see how the market plays out. Until the market settles down, O’Donnell said two things are going to happen. Private equity funds will start to expect less on their returns. Funds that usually target a 20 percent to 35 percent return will now have to hope for a 15 percent to 25 percent return, he said. In prior slow-downs, O’Donnell said, sellers were often much slower to adjust than the rest of the market. He said sellers would have to lower their expectations for the value of the businesses they are selling. Barbara J. Shander, a partner in Morgan Lewis & Bockius’ business and finance department, recently helped reach an agreement for its private equity fund client, Sun Capital partners, to recapitalize and acquire a majority equity interest in First NLC Financial Services. The terms of the deal were not released, but Sun Capital will have a majority equity interest in a company that originated $7.4 billion in mortgage instruments in 2006. Sun Capital wasn’t just looking to increase what it already owned. Shander said her client had an interest in First NLC previously, sold it, and is now coming back to the company. The deal was struck in late July, amid the market downturn. Shander said she doesn’t think the credit crunch will have much of an impact on the M&A market except for when it comes to the largest of deals. She said there is always a lag in what affect the economy will have on the M&A market. Morgan Lewis attorneys were involved in several deals at the end of July. Client Deb Shops entered an agreement to sell to Lee Equity Partners for $395 million and client Buckeye Partners agreed to buy Lodi Gas Storage for $440 million. A Little History When problems began in the subprime market and spread to other financial sectors, $300 billion in acquisition financings was committed but not yet drawn,” O’Donnell said. That was about equal to the amount of financings done in all of 2006, he said. The entities that traditionally buy debt were “crushed” in the subprime fallout, he said. That left 10 or 12 large institutional financers � who usually commit to a deal with the intention of immediately turning around and selling it to a buyer of debt � with nowhere to turn, O’Donnell said. “The music stopped,” he said of the musical chairs of the leveraged-buyout market. Some deals have since pulled through and others have been put on hold. O’Donnell said certain buyers have backed out, claiming performance issues on the part of the prospective seller. While he said the market seems to be recovering quickly, O’Donnell said a full-on recession could change everything.

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