Dec. 31 (Bloomberg) -- Sullivan & Cromwell, hired to advise on six of the 10 biggest deals in 2007, led all law firms in mergers and acquisitions for the fourth year in a row.

The New York-based law firm retained its title even as the value of transactions it advised on fell 11 percent from last year to $434.3 billion. Total announced mergers and acquisitions rose 10 percent to a record $4.04 trillion from last year's $3.67 trillion and from $2.91 trillion in 2005.

The subprime mortgage crisis and collapse of the credit and debt markets in the second half kept the 2007 record from being higher and may curb mergers and acquisitions in 2008, deal lawyers said.

``It's been a good year,'' Sullivan & Cromwell Chairman H. Rodgin Cohen said. ``But anybody who doesn't absolutely believe there's been a real slowdown in M&A in the last five months is kidding themselves.''

Martin Lipton, a founding partner at Wachtell, Lipton, Rosen & Katz, the fourth-ranked law firm, predicted a decline of more than 25 percent in M&A volume in 2008 in his annual client note.

``The restoration of liquidity and confidence will be the determining factors,'' Lipton said in the Dec. 17 memo. ``I am not optimistic.''

Energy Mergers

Energy mergers helped Sullivan & Cromwell this year. The firm advised Endesa SA, Spain's largest power producer, in its $53.3 billion acquisition by Acciona SA and Enel SpA, the second- largest merger of the year. It also aided Dallas-based Energy Future Holdings Corp., formerly known as TXU Corp., in its acquisition by KKR & Co. and TPG Inc., the fourth-largest deal of 2007 at $43.2 billion.

Sullivan & Cromwell had profits per partner last year of $2.82 million, the fifth-highest of U.S. law firms, according to the American Lawyer magazine, a trade publication. Sullivan & Cromwell ranked 13th in revenue among U.S. law firms at $900 million, according to the magazine, and had 732 attorneys, according to the National Law Journal, a legal newspaper.

The first half of the year was marked by record deal volume, boosted by private equity firms and the availability of debt financing for leveraged buyouts. As the credit collapse hit, transactions in the fourth quarter fell to $775.9 billion from $1.09 trillion in the same quarter a year earlier.

`Financial Problems'

``There's a lot of uncertainty now as to how serious some of these financial problems will be,'' Cohen said. ``People don't do deals in uncertain times. Perhaps towards the middle to the end of the year we may see a rebound.''

Several proposed multibillion deals faltered in 2007. On Dec. 21, a Delaware judge ruled that Cerberus Capital Management LP didn't have to complete its $4 billion takeover of United Rentals Inc., the largest U.S. construction equipment rental company, as long as Cerberus paid a $100 million breakup fee. Cerberus cited the credit markets.

Investors led by J.C. Flowers & Co. walked away from their $25.3 billion agreement to buy SLM Corp., the biggest U.S. education lender, after Reston, Virginia-based SLM refused to consider a lower offer. A suit over Flowers's decision to renege on the offer is pending in Wilmington, Delaware, Chancery Court.

Deals for stock rather than cash may drive the M&A market in 2008, Lipton said in his annual client note.

``The benefits of consolidation will overcome problems in the debt markets, provided the equity markets are receptive to the use of stock in lieu of cash,'' he said.

Foreign Buyers

Foreign buyers in the U.S. market also may boost transaction volume next year, said Scott Barshay, a mergers and acquisitions partner at New York-based Cravath, Swaine & Moore.

``As long as the U.S. dollar is where it is vis-à-vis the foreign currency, there's no question there's a compelling reason for Europeans or Asians to buy U.S. assets,'' Barshay said. ``It's cheaper for them to do that.''

U.S. law firms, which have dominated the M&A market in recent years, were the minority in the top ten this year.

The biggest jump among the top 10 was by London-based Allen & Overy, which ranked second this year after missing the list last year. It led all European firms. Madrid-based Uria Menendez also made the top 10, ranking eighth. Toronto-based Blake Cassels & Graydon was ranked 10th.

The list also included London-based Freshfields Bruckhaus & Deringer, in third place; London-based Clifford Chance in fifth; New York-based Simpson Thacher & Bartlett in sixth; London-based Linklaters in seventh; and New York-based Skadden Arps Slate Meagher & Flom in ninth, falling from second in 2006. Skadden's deal transactions fell 43 percent to $255.3 million from $447.1 million last year.

New York Firms

Among other New York-based firms, Cleary Gottlieb Steen & Hamilton fell from eighth to 30th place; Latham & Watkins dropped from seventh to 15th; and Davis Polk & Wardwell fell from ninth to 16th.

Simpson Thacher, which represents KKR & Co. and Blackstone Group, was the top law firm advising on private equity mergers and acquisitions this year with $186.8 billion in transactions, a quarter of the total private equity deal volume.

Deals involving private equity rose 2.6 percent from last year to a record $768.3 billion. All of the top ten private equity deals were announced in the first seven months of the year.

While the leveraged buyout market hasn't rebounded, the market for strategic deals is on the rise, said Barshay, who advised Grant PrideCo Inc. on its $7 billion acquisition by National Oilwell Varco Inc., announced in December; and International Business Machines Corp. on its takeover of Cognos Inc. for $4.5 billion in November.

Top-Ranked M&A Law Firms for 2007

Firm                               Value of Deals (in billions)

Sullivan & Cromwell                $434.3
Allen & Overy                      $401.6
Freshfields Bruckhaus              $374.4
Wachtell Lipton                    $357.8
Clifford Chance                    $349.7
Simpson Thacher                    $342.9
Linklaters                         $337.4
Uria Menendez                      $269.7
Skadden Arps                       $255.3
Blake Cassels                      $251.2

Top-Ranked M&A Law Firms for 2006

Sullivan & Cromwell                $487.9
Skadden Arps                       $447.1
Freshfields Bruckhaus              $369.1
Linklaters                         $326.8
Wachtell Lipton                    $309.5
Simpson Thacher                    $304.3
Latham & Watkins                   $290.6
Cleary Gottlieb                    $273.8
Davis Polk                         $263.5
Clifford Chance                    $260.6

Results for 2007 based on data compiled by Bloomberg as of 5 p.m. New York time, Dec. 28, for advisers of buyers or sellers. Results for 2006 based on data compiled as of noon Dec. 28, 2006.

To contact the reporter on this story: Lindsay Fortado in New York at lfortado@bloomberg.net.

Last Updated: December 31, 2007 16:31 EST