The oil price crash of the past year and a half is forcing Canadian investment banks and corporate law firms that profited from mergers and acquisitions, and financing deals during good times to focus instead on restructuring and asset sale work.
The trend is reshaping the staffing makeup at these banks, law and accounting firms, especially in the energy-dependent Western Canadian province of Alberta, with bankruptcy expertise in high demand even as the broader industry suffers.
Josef Krüger, a senior insolvency lawyer at Borden, Ladner, Gervais in Calgary, said his firm has five times as many lawyers working on insolvency files as it did two years ago.
“My concern had long been that we didn’t have good files on which to train young insolvency lawyers. Well, that’s changed.”
While some law firms are hiring these experts externally, many are simply shifting colleagues from other practice areas.
“We’re redeploying resources,” said Howard Gorman a partner with Norton Rose Fulbright in Calgary. “A banking associate who would typically be doing loan originations, is now assisting on restructurings.”
A similar trend is evident in Houston, where banks and law firms are also bulking up their restructuring teams.
“Restructuring is going to be a very prominent theme given the challenges the energy sector is experiencing and our team is very busy in that regard,” said John Armstrong, head of Canadian M&A at BMO Capital Markets.
In Canada, investment dealers owned by the country’s deep-pocketed banks are seen as best able to adapt. Industry insiders say boutique firms have been getting crushed by the dearth of M&A and financing activity, with many expected to shut down.
Still, asset sales are keeping some firms busy as companies look to boost liquidity. Some banks have even tapped engineers to strengthen their acquisition and divestiture (A&D) practices, which carry out the complex engineering and technical research needed to value oil and gas deposits.
“One or two Canadian firms are expanding A&D teams, based on the belief that we will see more A&D activity,” said Bill Vlaad, whose firm specializes in the recruitment of financial services professionals.
While many production assets are on the block, divestiture activity is likely to largely center around midstream assets like pipelines, storage and processing facilities. These are attractive for private equity players who can borrow against the assets.
“The midstream space, particularly for private equity firms, offer more certain cash flow,” said Janan Paskaran, a partner at business law firm Torys.
By Euan Rocha and John Tilak
(Editing by Jeffrey Hodgson and Bernadette Baum)
Photo courtesy of Shutterstock