Those BHP mandates – credit crunch? What credit crunch?!

Oh, for a part in BHP Billiton’s battle for mining rival Rio Tinto Group. While the two Anglo-Australian mining giants keep a long line of legal advisers billing late into the night, stats on European M&A in January show just how gruesome a start the 2008 deals market is off to.

According to data provider Mergermarket, European M&A deals announced in January were worth €36.5bn (£27.1bn), down from €77.3bn (£57.5bn) last year. The number of deals announced was also dramatically down, from 655 last January to 331 for the first month of 2008.

The collapse is hardly surprising, given the continued malaise among banks in Europe and US and general uncertainty in the world economy. But it goes to underline the bounty that a role on the $174bn (£89.3bn) BHP bid promises. In the box-seat in London are Slaughter and May for BHP Billiton and Linklaters advising Rio Tinto, each a longstanding corporate adviser to its client.

The 1 February acquisition of a 12% stake in Rio Tinto by Aluminum Corporation of China (Chinalco) and Alcoa has delivered additional prime roles for Chinalco’s counsel - Clifford Chance (CC) and Simpson Thacher & Bartlett - and Macfarlanes, Cleary Gottlieb Steen & Hamilton and Wachtell Lipton Rosen & Katz for Alcoa’s.

For CC, the Chinalco assignment is one example of the firm’s global network paying off, with lawyers from the firm’s China practice directing the company to the firm’s M&A partners in London to lead the deal. Sullivan & Cromwell has also snared a crucial role for Rio Tinto on US issues and antitrust matters.

The sheer size of BHP’s bid always meant that it would dominate the financial headlines. If successful, the acquisition will be the second-largest M&A deal of all time after Vodafone’s 1999 $180bn (£92.4bn) takeover of German telecom rival Mannesmann. But there’s also plenty of uncharted territory on this one. It would be the first tie-up between two dual-listed companies, since Rio Tinto and BHP are each listed on both the London and Sydney stock exchanges. And now there’s the added element of the Chinese buying a stake.

For Slaughters, the firm’s work for BHP Billiton has helped delay the impact of the downturn in the market. Nigel Boardman, the lead partner on the deal, says: “I’ve just been trying to place a job with [some of our associates here] but I couldn’t find anyone. If you had been here last night and seen the number of people working at 9pm, you wouldn’t think that the market has slowed.”

While the Slaughters rainmaker predicts further market turbulence in 2008, he is not convinced that it will bring a slowdown in activity for the major law firms. Others aren’t as sure - but a clear pattern in the current deals market is emerging. Apart from the BHP deal and the bid-battle for Yahoo, the mega-bid is obviously off the agenda.

The middle market, with deals worth up to about £1bn, is still active (though Mergermarket figures suggest not quite as active as many lawyers claim) but deal documents are covenant-heavy, reflecting most parties’ risk-averse attitude. Deals are also more prone to collapse, thanks largely to ongoing turbulence in share prices.

“The best-case scenario is that this lasts for about a year,” says one particularly gloomy London managing partner. “The worst case is we find ourselves in a Japan-style situation.”

Unsurprisingly, his firm is yet to land a role on the BHP Billiton/Rio deal.

rlloyd@alm.com

A version of this article appears on the website of The American Lawyer, the US sister title of Legal Week.