Seems like King & Spalding can’t open new offices fast enough. Atlanta’s biggest law firm has opened eight offices since 2007, including three in the Middle East—Dubai, Riyadh and, the latest, Abu Dhabi. One reason for the new outposts in the United Arab Emirates and in Saudi Arabia is the firm’s longstanding Islamic finance and investment practice.

Its new Middle Eastern offices notwithstanding, other King & Spalding offices also do Islamic finance work. The London office has cranked out work for Suez Energy International and Mitsui & Co. on a water and electricity project in Qatar; and for United International Bank of Bahrain on acquiring a controlling interest in a company that makes systems for filling and reconditioning liquefied propane gas cylinders.

Corporate partner Mark E. Thompson, an Atlanta native, works in the London office where he co-chairs the firm’s private-equity practice group. Thompson and his Atlanta-based colleague Raymond E. Baltz Jr. were lead counsel on another deal for a Middle Eastern client. King & Spalding advised Arcapita on the Bahrain private-equity fund’s acquisition of Scottish oil-well construction company Downhole Products Ltd. Arcapita acquired Downhole on behalf of its portfolio company, Varel International of Dallas. British law firm Herbert Smith advised Royal Bank of Scotland on its financing of the deal.

We spoke with Thompson about Islamic investments, the European market for private-equity deals and the work done by lawyers in King & Spalding’s London office.

Herbert Smith, RBS’s counsel on this deal, issued a legal alert that said in most U.K. leveraged buyouts involving Islamic finance firms, such as the Arcapita-Downhole deal, British banks have not provided Shari’ah-compliant financing. Instead, the banks used offshore vehicles for financing. Why do LBOs in the U.K. rarely use Shari’ah-compliant financing? Isn’t Shari’ah-compliant financing fairly common when U.S. firms are involved?

Direct Shari’ah-compliant financing is not commonly used in the U.K. for LBO transactions, although it is more frequently used in real estate transactions in the U.K. One reason is that U.K. financial-assistance laws prevent a company from using its own assets to finance the purchase of its shares, thus prohibiting this type of financing unless the target is a limited company (as opposed to a PLC), and what is called a “whitewash” is employed.

I wouldn’t say that Shari’ah-compliant LBO financing is common in the U.S. The demand for it is relatively limited and the structures are complicated.

Herbert Smith also said that Shari’ah-compliant deals are likely to increase in the U.K. because of continuing liquidity pressures. Can you comment on how the British and European private-equity markets look today?

The outlook for private-equity/LBO transactions in the U.K. and Europe is relatively similar to that in the U.S., although the conventional wisdom is that Europe may lag behind the U.S. by several months. Financing for acquisitions has become significantly more difficult to obtain. Larger financed acquisitions (in excess of US$1 billion) have effectively slowed to a standstill. However, mid-market transactions, in which the financing does not need to be syndicated, are still being done, though at a slower pace and with greater financing costs. The expectation is that pressure will be put on sellers to bring purchase prices down. The eventual lowering of pricing expectations will hopefully re-ignite the market. We do expect to see more Shari’ah financed acquisitions in the U.K. and Europe. I don’t necessarily think that it is the credit crunch that will cause more Shari’ah financed transactions to occur, as many of these deals are being financed by the same European and U.S. banks that are involved in the credit crunch. But an ever-growing amount of Middle East capital is being deployed in Europe and the U.S. and the demand for Shari’ah financing will continue to grow.

What other types of financing are common in today’s private-equity deals in the U.K.?

The types of security taken by banks in LBOs can be different in Europe than in the U.S., partly due to the European financial-assistance laws, but the basic types of financing are relatively similar.

Does the U.K. have a version of the U.S. Committee on Foreign Investment in the United States (CFIUS) law? And if so, did that come into play with the Arcapita-Downhole deal?

The U.K. does not have a CFIUS parallel, although Germany has proposed legislation that’s similar to CFIUS. Russia also recently adopted new rules on foreign investment in sensitive business sectors, but Russia has yet to implement those rules.

Did Scotland impose any regulations on the Downhole transaction? Scotland has some degree of autonomy within the U.K.

Scotland does have a legal regime that has some variations from the English system. The majority of the laws are relatively similar, but there are some important differences, primarily related to real property. These differences from English law didn’t cause any issues in the Downhole transaction and only really came into play in relation to the mechanics around taking security in the assets, physical execution of the agreements and transfer of the shares. The documents relating to the financing were actually a mixture of English and Scottish law agreements. No Scottish regulatory approval or review was required.

Arcapita just acquired Varel in November. Is it unusual for a company that's just been bought by a private-equity firm to move this quickly on making it own acquisition?

It is not necessarily unusual. In many cases, “add-on” acquisitions are opportunistic, and if the right company is being sold, the timing is not necessarily up to the potential purchaser. It is also frequently the case that when a company is purchased by a private-equity fund, that fund will want to take action to grow the company in the relative near-term. The fund will often provide capital that the portfolio company has previously lacked in order make such acquisitions, which may have been one of the reasons why the fund made the first acquisition. Funds also provide strategic planning to locate acquisition targets and the expertise to evaluate, complete and integrate an acquisition.

What kind of deals are most common in your work—representing U.S. clients with interests in the U.K. and Europe, or vice versa?

The vast majority of our work in London is generated out of the London office, as opposed to simple referrals from the U.S. Our London lawyers have been able to capitalize on many of the firm’s international clients and use those connections to win work out of their European operations. We specialize in cross-border transactions, so we do represent a good number of U.S. clients making acquisitions into Europe, the Middle East and even Russia and Africa. I continue to represent a number of major U.S. companies doing transactions in Europe, but I primarily focus on cross-border, private-equity transactions. Within the private-equity area, a large part of my practice involves the representation of Middle Eastern clients making acquisitions in Europe, as well as U.S. and European clients making acquisitions in the Middle East.