NewMedia Spark, Jellyworks, Antfactory and now Oxygen. They might have silly names, but for the firms acting for these internet incubators they represent serious business. Within days of floating on the Alternative Investment Market (AIM) last week, Oxygen’s shares had shot up to 65 pence from an issue price of two pence. This gave the company a market capitalisation of £240m, even though it had only raised just over £2m when coming to market.
The share price surge partly comes down to frothy publicity surrounding the company’s advisory panel, which includes such figures as Elizabeth Murdoch and PR king Matthew Freud.
More importantly it also shows that the tremendous investor appetite for these companies, and the internet start-ups they seek to invest in, has not diminished.
With a higher share price, the incubators and other listed internet companies have the opportunity to tap the market for more funds and make a further spread of investments. This means repeat business for firms in at the ground floor, advising on further fund raisings and investments.
Lesley Gregory, the Memery Crystal partner who advised Oxygen’s nominated adviser Seymour Pierce, reports that the firm has advised on 10 AIM flotations in the last six months alone. Another eight are in the pipeline.
And, as Gregory freely admits, her experience is far from unusual. Others to have picked up work include SJ Berwin & Co (Oxygen), Lawrence Graham (Jellyworks), Nabarro Nathanson (NewMedia Spark) and Stringer Saul (eVestment).
With so many small and medium-sized firms reporting an unprecedented level of work, it is hard to believe that less than a year ago AIM was widely derided as a failure.
Unsurprisingly, the larger City practices have began to take notice of this boom, despite previously sniffing at the thought of doing AIM or Ofex work.
But the small- and medium-sized firms hold significant competitive advantages. For one thing, the structure of the largest firms is simply not appropriate to this sort of client. After all, these companies do not want to spend the next few years paying off the original bill. And if they are offered discounted fees, they tend to resist any later increase.
Nor will the largest firms be able to provide the partner level involvement that many internet entrepreneurs demand. So for once the City giants will have to continue looking on with envy.

FTC breaks consolidation wave
If 2000 will be remembered for anything it will be for the number of times that you see the phrase: “…in the largest takeover of all time”.
As if AOL’s £220bn merger with Time Warner was not enough, now we have Vodafone’s £113bn takeover of Mannesmann. Vodafone’s adviser is Linklaters, with the mercurial David Cheyne leading the charge. The firm will be pleased to get its hands on a share of the £600m allocated by both companies for advisers’ fees.
But the onward rush of consolidation wavered for a second when last week, the Federal Trade Commission (FTC) announced that it would seek a preliminary injunction in the federal district court to prevent the £16.4bn merger of BP Amoco and Atlantic Richfield Company (Arco) on competition grounds. If the court grants the FTC’s motion – issued on 4 February – the Commission will have 20 days to determine whether to issue an administrative complaint – the start of the trial process.
BP Amoco and Arco made a joint statement: “We regret that the only course now open to us is to resolve the issue through litigation, but we have a compelling case in support of our combination which we will argue vigorously in court.”
Group general counsel at BP Amoco, Peter Bevan, has teams from Sullivan & Cromwell and Kirkland & Ellis working on the merger. Kirklands’ antitrust partner, Frank Cicero, will lead the defence to the FTC’s claims.
Fortunately, the prospect of facing lengthy FTC-led litigation has not worried Bevan. He jokes: “I have such a splendid team, I might go on holiday.”