It's been a busy year for legal firms. Over the past decade a mountain of regulations and legislation has increased demand for commercial legal expertise, litigation has increased and economic fundamentals have driven merger and acquisition (M&A) activity.

Says Cliffe Dekker chairman Chris Ewing: "It's been hectic. There isn't a law firm in town that hasn't been active and this, combined with a general skills shortage, has made for a busy year."

According to Ernst & Young's M&A report, there were 744 deals during 2005 (2004: 822). Despite the decrease in the number of reported transactions, the rand value increased by 63% to R269,1bn. There were eight mega deals (more than R5bn) in 2005, compared with the previous year's five, and the value of these deals was R141bn.

The large legal firms continued to advise on the lion's share of these deals, though there were a number of smaller players who made it on to the ranking by the sheer size of the deals concluded.

During 2005, Webber Wentzel Bowens (WWB) toppled Edward Nathan from first position, advising on the largest number and biggest value of transactions, according to Ernst & Young. WWB advised on 41 deals worth R140bn, double Edward Nathan's 32 deals worth R70bn. Werksmans advised on 26 deals. Next on the list was Deneys Reitz with 19 transactions worth R70,2bn; then Hofmeyr Herbstein & Gihwala Inc with 14 deals at R59,4bn; Bell Dewar & Hall with three deals worth R30,9bn; Clifford Chance with two deals worth R30,3bn, CLS Investments with two deals worth R28bn as well as Kwinana Nyapotse Inc and Maforah Nkwe Attorneys with one deal each worth R25bn.

"It was a bumper year, we advised on five of the seven biggest transactions by value," says WWB senior partner David Lancaster. "We also had a number of exciting cases, such as advising the pharmaceutical industry during the battle over pricing, as well as competition cases."

M&A activity continued to be driven by black economic empowerment (BEE) deals - three of the eight mega deals were BEE-related - but there seems to be a healthy balance of traditional corporate finance activity too.

"Much of the M&A activity has been spurred by inward investment by foreign companies and there has also been substantial M&A activity among large private companies," says Werksmans commercial director Dave Walker.

Research consultancy Business Map says the number of companies doing business in Africa has more than doubled since 1994, and by the beginning of 2005, 34 of the Top 100 JSE-listed companies had 232 investment projects in Africa.

"Up until now, most companies investing in Africa have tended to use English law firms," says Lancaster. "But over the past year, with transactions the size of the Barclays/Absa deal, SA firms have proven that they have the skills required to advise on large cross-border transactions. It's only a matter of time before they venture north."

BEE is likely to continue to underpin much of the corporate activity in the year ahead. Ewing says changes to section 38 of the Companies Act will allow companies to use their own funds to finance the purchase of their own shares, which will help drive BEE deals by making them more accessible to more companies. "This means there will be an increased pot of funds to facilitate BEE deals, where black partners previously found it difficult to finance purchases of shares," he says.

Bowman Gilfillan chairman Jonathan Schlosberg says the changes will enable lawyers to focus on the substance of deals, rather than spending time on complex funding structures to avoid the prohibitions in section 38.

Deal activity over the past year also drove business for legal advisers in other areas. Says Deneys Reitz chairman Michael Hart: "In addition to M&A appointments like the Barclays/Absa transaction, an important component has been representing banks and finance houses in many deals where we may not have featured as the M&A transaction lawyer."

He says there has also been a steady flow of commercial litigation. Deneys Reitz continued to act for insurance companies in many liability and calamity claims, and for firms such as Deloitte in the LeisureNet case. "We've also been involved with some of the major accounting firms in litigation as the result of corporate failures."

Werksmans litigation head Des Williams says arbitration and mediation work has grown significantly. "The advantages of arbitration, such as confidentiality, speed, country neutrality and cost-effectiveness, are internationally recognised," says Williams. "SA could become an international arbitration centre." There was no shortage of competition cases in the past year. Judging by the number of lawyers present, the competition tribunal's hearings into the proposed merger between Sasol and Engen was one of the biggest cases so far.

"There is a competition angle to every transaction and the costs of not complying with regulations can be huge," says Lancaster. "We now have two in-house economists providing economic analysis, because competition law is becoming increasingly complex."

Most firms have made good progress on their black empowerment scorecards - with a target of 25% of black senior partners over the next two years. The majority have opted to grow their black talent internally and over time.

Werksmans was the only firm that opted to supplement organic transformation with a merger. It merged with Nalani Manaka to introduce more black partners into the business.