With Europe currently in the throes of a surge in big-ticket M&A work not seen since the heady days of the late 1990s, it is easy for deal lawyers in the City to reflect on the cyclical nature of the market.

Such philosophical musings inevitably come easier in times of plenty, however, and for deal lawyers in the regions – particularly those specialising in private equity-backed deals – the last few years have offered little promise of good times ahead.

However, the talk is that, after a turbulent few years, the regional private equity market in the Midlands has now turned something of a corner and is on the road to recovery, with the region's remaining venture capital houses becoming more ambitious in the size of their targets. The likes of Lloyds TSB Development Capital (LDC) and Barclays Private Equity have been particularly active of late, partially compensating for the loss of some key players from a market that Hammonds' Birmingham private equity head, Peter McLintock, says is currently "in flux".

"It has been a tough period in Birmingham," he says. "The UK private equity market as a whole has become more London-centric and Birmingham is the most susceptible regional centre to that trend, as it is the nearest geographically."

"Lots of investors have downsized and relocated to London," agrees Birmingham-based DLA Piper Rudnick Gray Cary partner Jim Lavery. "That has, to some degree, damaged the critical mass of venture capital houses in the region. For the Midlands market, 2004 was the worst year I have seen for deal volume. But there has undoubtedly been an upswing since November or December [and] the market is now the most buoyant it has been for three or four years."

An upbeat McLintock suggests that the past six months have seen confidence pick up among local advisers and investors alike, with Hammonds sealing a run of deals, including the sale of Metal & Waste Recy-cling to Barclays Private Equity – a deal thought to be valued at more than £100m and one of the UK's largest leveraged buy-outs in the waste sector to date.

Hammonds led on that deal opposite the local arm of DLA Piper, which is regarded to have had an especially strong run of late. The firm topped the 2005 deal rankings for Midlands-based private equity advisers, acting on 10 deals valued between £5m and £100m, worth a combined £310m, ahead of national rivals Eversheds (seven deals worth £180m) and Pinsent Masons (five deals worth £146m). Meanwhile, the newly-forged Anglo-Scots firm HBJ Gateley Wareing scored a notable lead role opposite Pinsents on the partial sale last December of packaging business Paragon Labels by Barclays Private Equity to LDC.

"That is a good indicator of the sort of business that is now being done here," says Pinsents partner and Midlands head of private equity Paul Harkin. "The past 12 months have certainly been better. It is probably fair to say that has, for the most part, been driven by local private equity houses selling investments. There have been lots of good exits keeping advisers busy. Venture capital groups now have not only the cash, but the time to get stuck in to new opportunities," he adds.

Local lawyers are now hoping the surplus of cash translates into an appetite for new acquisitions.

"The market has certainly been re-shaping," says McLintock. "LDC has been gearing up, if anything. Barclays Private Equity has also done a couple of large deals recently, which shows they are still here. Since around November it has started to look a lot healthier – almost as if people are drawing a line in the sand."

Despite that upturn in optimism, the region was dealt a fresh blow with the announcement earlier this year that the much-coveted Bridgepoint Capital was to close its Birmingham arm, continuing a trend that has seen a number of other investment groups scale back their regional operations.

Indeed, a similar picture is prevalent across the Midlands as a whole, with the surrounding provinces suffering from similar retrenchment.

"LDC is now the only major player left in Nottingham," bemoans one local partner.

Particularly painful to regional confidence was the desision by leading UK investment house and longstanding Wragge & Co client 3i last year to pull the plug on its own Birmingham operation, preferring to orchestrate future deals in the region from its London hub.

Wragges concedes that it has responded by redoubling its investment in its fledgling London buy-out practice, with Andrew Lawton Smith now the firm's only dedicated private equity partner based full-time in Birmingham.

Local partners claim the departure of Bridgepoint is less of a blow to the region than the exit of 3i.

"It is a hit for advisers when a name like 3i pulls out," says Harkin, "but Bridgepoint has always been more London-led. Most of its focus is on large UK and continental deals. The Birmingham office has not been particularly active for the past few years, so [its departure] is less of a loss than 3i."

Partners say the negative perception created by the exit is likely to be more of an issue than a resulting lack of deals, with smaller groups, such as Isis Equity Partners and Catapult Venture Managers, providing a modest but growing stream of work.

"The perception is worse than the actual impact," argues Lavery. "The regional market appears to be diminishing… but the likes of LDC, Gresham [Private Equity] and Isis are all looking up that food chain to do bigger deals."

While advisers are hopeful the current upturn in fortunes is gathering pace, there is little real hope that the relative boom days of a few years ago will return in full, with investment banks and financial institutions similarly regarded as being very much on the back foot in the regions.

"It is hard to see £100m-plus deals consistently returning," concedes McLintock. "But there is a hunger out there – the likes of LDC, Barclays Private Equity and Gresham are all capable of writing the kind of cheques Bridgepoint and 3i used to, but it will not be as often."

Meanwhile, the prevalence of auctions among smaller and smaller deals is presenting advisers with other challenges, the need to back the right bidder adding further to the commercial pressures already in place in a market that partners agree is over-lawyered.

Deals are now prepared 'quick and dirty', in the parlance of one local partner, with details subsequently thrashed out if required.

"There are two main threats to Birmingham – the drift towards London and the auction-driven marketplace," says McLintock. "All we ask for is realism [from clients and] there is not so much flying of kites these days."

"The auction process undoubtedly has merits for deals above a certain size," says Lavery, "but an auction on deals under £20m or so makes life very tough for the venture capital groups."

Although there is a hint of 'flavour of the month' about the current prevalence of auctions in relatively modest deals, partners believe that popularity is unlikely to wane just yet.

"Auctions have worked their way down the value chain into the mid-market and it is hard to see them going away," says Pinsents' Harkin. "They have made it harder for everyone on the buyer side. It is a good auction if you are one of just four bidders, say. Most firms will then take a punt with a sensible client. If you are one of 12 bidders, maybe not."

He adds: "[The solution] is twofold. One is picking the right client, the other is developing deeper relationships with those clients. There is the need for a bit of give and take in the relationship – if you win an auction, advisers should be well rewarded to make up for those that you do not."

"If the market continues to be auction-driven," concludes McLintock, "there will be more losers than winners."

In a testing local marketplace, that will surely be the case, auctions or otherwise.

Shoosmiths tailors Midlands plan

While private equity partners are fighting harder than ever to win market share, the competitive Midlands transactional market finds itself with another new entrant.

The latest pretender comes in the form of expansive national firm Shoosmiths, which recently moved to bolster its transactional capability in the region with the hire of veteran corporate finance specialist Chris Garrett.

Garrett joined the top 50 UK firm's Nottingham arm earlier this month after 14 years as a partner with national giant Eversheds. His appointment continues a drive by the ambitious firm to beef up its corporate practice in the region, having also moved of late to reinforce its embryonic Birmingham arm, which launched in 2003 with the hire of Lee Crowder property partner Joel Kordan, who continues to head up the office.

In 2004 the firm added a corporate recovery practice in the city after hiring a brace of associates from the legacy Gateley Wareing, while most recently in-house lawyer David Jackson joined as a partner from food services giant Compass to spearhead a new commercial team.

"We are looking to build a Midlands corporate team between Nottingham and Birmingham," says Shoo-smiths' national head of corporate and commercial, Oliver Brookshaw. "We have built heavily in the south and are now trying to do the same in the Midlands."

Imminent hires are set to further reinforce the transactional practice in the region, according to Brookshaw, while the firm will hope to convert work for local companies in new practice areas such as IT and employment into transactional instructions.

Echoing views prevalent at some other growing nationals, and countless ambitious regional practices, Brookshaw says the increasingly international focus of national giants such as Eversheds and DLA Piper should enable nimble advisers to grab a larger share of the corporate mid-market.

As such, the firm is explicitly targeting FTSE 350 and equivalent companies – a tactic not unlike the stated strategy of Addleshaw Goddard, one of the largest UK practices to deliberately shun international expansion.

"Where we, as a national firm, are looking is at those UK corporates which were previously handled by City firms and the bigger nationals – which are now global in focus – and are not getting the attention they used to."

While conventional wisdom has it that expansion invariably comes at a price, Shoosmiths has managed to simultaneously lift profitability firm-wide, last year posting a headline grabbing 47% hike in average partner profits – continuing a trend that has seen profits more than double over two years, reaching a very competitive figure of £333,000.

If profitability can be maintained and the right people brought in to raise the firm's profile in a personality-driven marketplace, there seems no reason why Shoosmiths cannot make a lasting impact in the region, its unusual geographic footprint notwithstanding.

Brookshaw says the firm has no pretensions of muscling in on the private equity market, instead targeting corporate buyers, where activity levels are more robust.

He says: "The [private equity] market has been quite tough. One or two large deals may have kept people busy and given them something to talk about… but there are too many players and not enough work."

Blueprint for the future

A glimpse into one possible future was provided last month with the formation of a pioneering new partnership between in-house lawyers at a group of east Midlands local authorities and solicitors in private practice.

Eighteen local authorities are operating jointly under the name EM Law Share and have awarded three-year contracts to a number of regional firms to handle civil litigation, commercial, planning and property work.

Midlands firms Browne Jacobson and Freeth Cart-wright joined southwest practice Ashfords and northwest outfit Weightmans as the eventual winners from a process that saw almost 100 firms pitch for the coveted slots.

Reduced fee arrangements mean the authorities jointly expect to save around £2.5m over the next four years. Although panel firms are not guaranteed work, the authorities will be keen to take advantage of the low fees and seem likely to favour their formalised advisers.

The move demonstrates the influence local authorities can command when their spending power is united and could become the blueprint for similar schemes across the UK.

Freeth Cartwright chairman Colin Flanagan comments: "It was an extremely important tender process [and] the appointment is certainly something we are very pleased about. We have been working for some time with Nottingham County Council [one of the participating authorities] and we are hoping to build on that. It is still very early days and it remains to be seen how different types of work will be allocated, but it may be the case that particular authorities gravitate towards particular firms."

The appointment follows a push in the firm's public sector practice which saw partner Stephen Pearson join from Bevan Brittan to head up its public-private partnerships team.

Meanwhile, the firm now has its sights set on expansion and is evaluating its options in light of the reforms advocated by Sir David Clementi.

"The challenge for us now as a firm is deciding how to use what we have generated in the east Midlands further afield," says Flanagan. "We are currently in the planning phase [but] my vision of the future is to be able to adopt a more flexible approach than has been possible in the past."