A matter of time – Simmons & Simmons

After a failed merger, a drop in both revenue and a profits, and a slew of partner departures, Simmons’ new managing partner Jeremy Hoyland certainly has his work cut out. Can his plans for change deliver?

Jeremy Hoyland’s timing has always been a little off. He qualified just before the 1990s’ recession, tried to launch a finance practice in Asia just as the Asian financial crisis hit in the late 1990s and has now taken over Simmons & Simmons at a time when the firm’s financials continue to struggle and it is being over-shadowed by several of its closest rivals.Failed merger talks with Mayer Brown have also hardly helped the firm’s market profile.

Having officially taken over as managing partner of the City firm at the start of the month, Hoyland has his work cut out for him. His management nous has been honed leading the firm’s largest sector group, the financial markets department, since 2005 and from his involvement on the firm’s international executive committee (IEC). ‘I’m rolling with the punches,’ he laughs as he surveys his numerous challenges. ‘Being on the IEC I’ve been pretty closely involved in the major decision making at the firm. I’m trying to go through the initiatives and work out which ones are really important and which ones I want to focus on.’

Simmons’ financials have been on a steady decline for the past three years. At the time of going to press, management thought it was unlikely that the firm would see revenue growth for the financial year just ended. The firm’s corporate practice has, for some years, struggled to contend with key competitors and the rest of the firm’s practice areas. As one former partner put it, ‘the corporate practice has been haemorrhaging cash for too many years’.

Hoyland is already at work. Before taking over as managing partner, he overhauled the firm’s international practice group structure. He has consolidated the firm’s ten practice areas into four – corporate and commercial, employment, financial markets, and dispute resolution.

On the international front hopes remain high that the firm will receive its Beijing licence, while the final details are being put to an alliance in Saudi Arabia.

Hoyland is adamant that the firm focuses on excelling where it has already been successful, moving away from the idea of being a full-service firm. ‘I really believe that we need to focus on strengths, I don’t believe in full service,’ Hoyland insists. ‘With the sophisticated client base that we have, they are selecting specific firms for particular needs.’

He’s also due to have the backing of a new senior partner, with David Dickinson set to step down in July. But much of whatever happens in the next 12 months will boil down to the moves Hoyland makes as managing partner.

The banker’s tea party

Although he officially took over on 1 May, Hoyland’s handover process began shortly after he was elected in December, beating German chief Hans-Hermann Aldenhoff. Hoyland’s first move was to consolidate the firm’s ten practice groups into four areas. The initiative, which took effect from the start of this month, is not just driven by the desire to promote cross-selling but is also designed to get partners working more collaboratively together in London and abroad.

‘This is more about bringing together and using the international network,’ Hoyland explains. ‘It’s using the links between the practice groups and sectors, and cross-selling our services.’

Mark Curtis, who previously led the corporate practice, will now run the new look corporate and commercial practice group, while Aldenhoff will lead the disputes practice from Germany. Jonathan Hammond succeeds Hoyland as head of the financial markets practice and City-based Simon Watson will head up employment.

Hoyland’s goal for the firm is to build on the success of the financial markets department, which has cross-sold its services to the banks and hedge funds for some time.

‘I’d like to see more of that and make sure that all of the partners are looking out for opportunities for each other,’ Hoyland comments. ‘I’d like to see them combining skills and not just focused on their own practice and their own clients.’

The financial markets group, which makes up 52% of the firm’s overall turnover and billed £123.1m last year, includes 81 partners and is by far the largest of the four practice groups. It’s split between financial services (which includes funds, regulation and derivatives), banking, financial markets litigation, commodity and energy trading, and corporate recovery and restructuring.

‘Having made it through the first level of the recession, we now have a platform where we know we can work from.’
Mark Dawkins, Simmons & Simmons

Having established itself as a separate group from the general banking and finance department in 2000, the financial services practice has been one of the firm’s obvious success stories, making particular headway with the City’s funds community. ‘We’re planning for growth,’ comments financial services chief Richard Perry. ‘The hedge fund sector suffered investor outflows in 2008 and 2009. What filled the related gap in new fund launches following the peak of fund restructuring work was the increase in our regulatory work. We’re confident that the hedge fund sector will get bigger.’

Simmons’ financial institution clients are the backbone of the business. Counting ten of the leading investment banks as clients, the firm has also won spots on almost every major banking panel in London, including Deutsche Bank, Lloyds TSB and Barclays. Six out of the ten largest hedge funds launched in Europe in 2010 also turn to Simmons for advice, and its funds clients in general include the likes of Altima, Gartmore and Henderson.

But while the financial markets group has thrived, corporate has lagged behind the market. As part of the restructuring plan the firm’s projects and information, communications and technology practice will merge into the 50-partner corporate group. The most cynical of ex-Simmons partners say that this is just to superficially boost the group’s numbers, but the rationale behind it from Hoyland’s point of view is to home in on the areas where the firm is performing well. In this case deals in the asset management sector and equity capital markets.

The firm has had a tough time landing roles on major M&A mandates, despite the strength of its sector focus. According to mergermarket data, Simmons advised on just 39 global M&A deals in the energy sector, which were worth $95bn between January 2005 and March 2011. That compares with Herbert Smith acting on 107 deals worth $387bn and Hogan Lovells picking up 93 deals worth a total of $347bn. Similarly, in the life sciences sector, another of Simmons’ chosen sectors, things look just as thin. During the same period, Simmons took roles on 35 deals worth just $25.4bn compared with Hogan Lovells chalking up 141 deals worth $112bn.

The corporate practice has also suffered a spate of partner departures. In January the firm’s London office lost three young corporate partners to rival firms. Daniel Winterfeldt, who’d been with the firm for three years and joined from Jones Day, left for CMS Cameron McKenna. Gavin Weir, who is touted by many people as an up-and-coming star, left for US rival White & Case, while Richard May left to join Fried, Frank, Harris, Shriver & Jacobson.

London corporate wasn’t the only practice to see partner departures over the past 12 months. The firm lost its energy chief David Shasha to Canadian outfit Gowlings late last year. Mark Norris, who led the London banking group and had been based in the short-lived Moscow office, left in October 2010 to Squire Sanders Hammonds.

Perhaps the most significant departure was litigation partner Jonathan Kelly, who left in February last year for Cleary Gottlieb Steen & Hamilton. Kelly is considered one of the leading finance litigators in London. He was also touted by some as the next managing partner of the firm.

‘I was gobsmacked when he left. He was at the vanguard of driving the firm’s strategy forward,’ says a former European partner.

Falling through the finance hole

In part to help keep hold of the firm’s stars, Hoyland acknowledges that improving the firm’s waning profitability is one of his top priorities. Although he claims he doesn’t believe in cutting costs to boost numbers, in the throws of the global downturn Simmons’ management, like most in the market, took several measures to reduce the firm’s overheads.

A redundancy round saw the firm cut more than 90 associate, secretarial and support staff positions. One-third of those redundancies hit the financial markets department. The firm managed to make £30m in savings, which also saw some partners depart, the closure of several offices and renegotiations on the firm’s lease agreements in many jurisdictions.

Now Hoyland insists that financial improvements can be made in ways other than tightening the belt.

‘I don’t think we should be spending time looking at the bits which are underdeveloped, we should be looking at the bits which are top of the market,’ explains Hoyland. ‘I really want us to focus on the strengths. Some of that is leveraging off the sectors and some of that is practice groups.’

Management isn’t forecasting top-line growth for the financial year just ended. ‘Revenue won’t be up but that is a reflection of where the market is and where our practice is in the market,’ says Mark Dawkins, former managing partner. ‘People remain quite cautious, but having made it through the first level of the recession, we now have a platform where we know we can work from.’

It can be argued that much of Simmons’ financial success a few years ago can be credited to Dawkins. Completely overhauling the structure of the firm’s business lines in 2005, Dawkins’ decision to move towards a sector-focused practice, comprising financial institutions, energy and infrastructure, life sciences, and TMT, paid dividends during the boom years.

The success shone through on the balance sheet as Simmons’ revenue and profits enjoyed a steady four-year rise. In the 2004/05 financial year, revenue was £196m. By 2008/09, income had grown by 49%, hitting a high of £291.3m. Between 2004/05 and 2007/08 profits per equity partner (PEP) shot up from £385,000 to £647,000.

Work in the four sectors now accounts for 80% of the firm’s revenue, with the remaining 20% from the public sector, accountancy firms and other professional services. The firm brought in £186.8m in billings across the four sectors during the 2009/10 financial year. That marks a 106% rise on 2004/05 year when the firm billed £90.2m from the sectors.

Energy and infrastructure accounts for 15% of the firm’s revenue, making it the largest sector after financial institutions, which contributes a massive 52% to the top line. Life sciences comprises 7% and TMT 6%.

With its huge exposure to the financial markets, Simmons was not surprisingly hit hard by the recession. With both Lehman Brothers Holdings and Bear Stearns Companies among its client base, the firm’s financial performance suffered. Last year PEP slipped 13% to £453,000 having fallen by 20% the previous year. That is broadly in line with several of the firm’s competitors. At Norton Rose PEP dropped 6% last year to £485,000 while CMS Cameron McKenna reported a 20% fall to £444,000. Further up the market Ashurst and Hogan Lovells remain comfortably ahead in PEP terms.

Where Simmons fares worse is in profit per lawyer, which dropped to £63,000 last year down from £75,000 the year before and a peak of £101,000 in 2008. That steady decline compares with Norton Rose dropping from £96,000 in 2008 to £81,000 last year and legacy Lovells, where profit per lawyer was £100,000 in 2008 falling to £91,000 last year. Improving the profitability of each Simmons lawyer is therefore a vital task for Hoyland.

The economic crisis and the resulting slump in the firm’s financials tainted Dawkins’ second term. ‘The first of Mark’s terms as managing partner was hugely successful and the firm had a real buzz about it,’ comments one former partner. ‘He stood again in 2008 and the second term was less successful.’

Through the looking glass

Hoyland jokes about the lengthy ‘to-do’ list that he drew up in the lead up to him taking over. ‘It already has about 50 things on it,’ he mutters.

As well as restructuring the practice groups, the firm’s international network and US strategy are firmly on the list.

On paper, a merger with Mayer Brown would have made sense. The Chicago-based firm’s financial institutions practice would have complemented Simmons, while Mayer Brown’s Asian business would also have been a considerable boost.

When Dawkins and Dickinson started to look at doing a US deal in December 2009, the pair drew up a list of firms that matched their practice both in financial scale but also in practice focus. Although neither Dickinson nor Dawkins would confirm which firms were on the list, it didn’t include Mayer Brown. Both sides claim that the other made the first approach in January 2010 and although a merger was never put to a vote, Simmons partners seemed more open to a tie-up.

When talks came to an end in June 2010 a statement from both firms said: ‘We have concluded that a combination between our firms is not the right option. There is, however, considerable goodwill and continuing respect on both sides.’

It is believed that Mayer Brown was less than impressed with the fragile state of Simmons’ European network and its corporate practice. Sources at the US firm also say the combination would have been too costly, pointing to the fact that merging IT systems would alone have cost £15m. ‘There would have been a high cost of integration and transition. There would have also been financial issues,’ one Mayer Brown partner comments. ‘No doubt it would have been a good fit. Our belief was that the comparison was good but we had a mismatch in strategic investment.’

Although Dawkins and Dickinson had drawn up a list of favoured candidates and were clearly open to a deal, both say that neither firm was in a position to merge at the time. Any deal wouldn’t have been helped by a gulf in profitability had the merger gone through. In 2010 Mayer Brown’s PEP was $1.07m (around £650,000), comfortably ahead of Simmons. The merged entity would have created a £1bn business with over 2,400 lawyers.

Hoyland’s growth plans still include a tie-up with a US firm, but he is clear that the firm must be careful in choosing its merger partner. ‘I am interested in strength and depth and not scale,’ he says about what might drive the firm to do a deal with a US practice. ‘Our focus would be on good firms that have synergies with our practice and with which we have cultural alignment. For me it’s not about cost efficiencies, it’s about opportunities to enhance the business.’

For a merger between a US outfit and Simmons to make sense, the two firms would have to be strongly matched in four main areas: financial markets, energy, litigation and life sciences. The two would also have to be closely linked in terms of headcount and financials. Geographical reach is also important, particularly in the emerging markets.

‘The sector focus is great, but we could be more profitable and there are various ways that we can achieve this.’
Andrew McMillan, Simmons & Simmons

Fulbright & Jaworski, which has a strong litigation practice and is also respected in the healthcare arena and energy sector, is one that could fit the bill. The firm has 334 equity partners across its office network, which includes Beijing and Riyadh. Similarly, Pillsbury Winthrop Shaw Pittman, which has 173 equity partners, wouldn’t give Simmons the geographical reach outside of the US that it’s looking for but would strengthen the firm’s energy and pharmaceuticals groups.

Hoyland also has a clear interest in the firm’s position in the key emerging markets. Having led Simmons’ Asian financial markets practice in Hong Kong between 1998 and 2001, he’s always had a feel for the international reach of the firm’s business.

‘I really believe that the emerging markets are going to be fundamental to growth,’ he says. This means that the Middle East and Asia have been earmarked as two regions where the firm should expand, with new offices planned in each region. At the time of going to press, the firm was on the brink of signing an alliance with a local firm in Saudi Arabia, where it’s seeing higher levels of projects-related work. A Saudi office would add to the firm’s existing trio of offices in the region, which includes Dubai, Abu Dhabi and Doha. Simmons was one of the first foreign firms to open in Qatar in 2003 and the first international firm to be granted a licence to practice local law. ‘Qatar is the real jewel in the crown in the Middle East and has real potential for growth,’ comments Aldenhoff.

The firm continues to wait patiently for its licence to open in Beijing. The plans have been in the pipeline for more than a decade, but recently Simmons has acquired office space in the Chinese capital and hired a team of local lawyers, including corporate partner Davis Wang, from King & Wood. The firm aims to have up to ten lawyers on the ground in Beijing a year after the office opens.

To some the Asia practice has never fully recovered from a raid in 2006 by Fried Frank which took a team of eight partners, including head of office Huen Wong, from Simmons’ Hong Kong practice. ‘Fried Frank had dealt Simmons a grave blow when they took Wong – he was the lynchpin. It [Hong Kong] has died a death since,’ says one former partner.

Hoyland’s plan is to streamline relationships between the offices and says this is possible by bringing partners together globally across the firm’s practice and sector groups. The testing ground for this strategy would be improving the co-ordination of the firm’s Africa business. ‘Africa is a strong business, but it hasn’t necessarily been pulled together,’ says Hoyland ‘We have a good track record of doing project work in North Africa and finance deals in South Africa.’ He believes the firm could be doing more in the region.

‘What I’d like to see is that we pull all of that together,’ he says. The firm’s Paris office focuses on French-speaking Africa, while London and the Middle East offices predominantly focus on North Africa, with City partners also focusing on work coming from South Africa.

Regardless of the success of the Africa strategy, continental Europe is in need of a change in approach. In the five years leading up to 2010, Simmons closed several offices, including Moscow (after just two years), Padua and Rotterdam, at the same time as demerging from its Portuguese practice.

More recently, the firm’s Paris office has been in the spotlight. In the space of a month, it saw the departure of French real estate chief Edouardo Vitry, along with counsel Joanna Klat and associate Benjamin Chouai, who jumped ship for K&L Gates in late March. At the start of last month, employment partner Laure Joncour joined Norton Rose, taking with her of counsel Marie-Therese Euginio and Elodie Grangier. The office has also seen the departure of corporate partner Arnauld Achard, who moved to Fasken Martineau DuMoulin, and Africa group head Christophe Asselineau, who left for Shearman & Sterling.

Germany is the only European jurisdiction that hasn’t been rocked by a wave of partner departures and falling profitability. Predominantly known for its employment and finance work, the firm’s 12-partner German offering has experienced considerable growth since its 2002 launch. Although Simmons would not disclose how much each geographic region brings into the firm’s business, it is thought that Germany contributes roughly 8% of overall revenue.

Aldenhoff, who sits on the international executive committee, has high hopes for the region. ‘Germany is very competitive. We actively pursue growth plans, but not for the sake of size. We are focused on maintaining and growing our high profitability and continuing to do first-class work,’ he says.

Late to the party

To some in the market Simmons has suffered something of an identity crisis. Or, more specifically, a failure to decide what its identity actually comprises. The firm’s struggle to really make its mark internationally has been in contrast to some of its competitors. Suddenly some of Simmons’ closest rivals have taken bold strategic steps that have transformed their international standing.

During the past two years, Norton Rose has been busy adding new firms to its global network, including merging with Deacons Australia in 2009 and, more recently, South Africa’s Deneys Reitz and Canada’s Ogilvy Renault. Likewise, Lovells’ transatlantic merger with Hogan & Hartson has transformed its standing as a global firm. Lovells also did the deal from a strong financial position, with revenue up 2% last year to £541.8m and PEP up by 8% to £630,000.

Much now rides on whether these tie-ups can be made to work but to some there’s a sense that Simmons is being over-shadowed. ‘There was a time when Simmons & Simmons was spoken about in the same breath as Herbert Smith, Lovells and Norton Rose,’ comments a senior ranking partner at a rival firm. ‘But part of its problem moving forward from those times was that the firm didn’t have a unique selling point.’

A common complaint made by former partners is that there has been a reluctance on management’s part to address the problem of under-performing partners, identify potential growth areas, and a lack of drive to win business. Dickinson says the firm has always had a conservative approach to decision making, but has been progressive in other areas such as remuneration, where the firm introduced a merit-based remuneration system for associates last year. ‘It’s just the way we do things,’ he says of the firm’s style.

‘Jeremy gives straight answers. He will be a very solid manager and will take a direct approach to tackling the firm’s challenges.’
Juliet Reingold, Simmons & Simmons

Much of the criticism of Simmons has focused on the number of people in management at the firm who, critics snipe, do little fee-earning and have ducked ruthless decision making. ‘There was a lack of ruthlessness at the firm, and although it’s never nice or easy to tackle the issue of under-performing partners, in a successful business, this is what you have to do,’ says an ex-partner.

Despite that criticism the firm did launch a de-equitisation campaign that saw the equity shrink by 15% between 2007 and 2010. Some of those partners were merged into the salaried ranks (the number of non-equity partners has grown from 73 in 2006 to just over 90) while some left.

Dawkins also points to the firm’s flexible merit-based remuneration system for partners, which allows management to move them to a level that reflects contribution.

Although reorganising its business by sector focus carved something of a niche for Simmons in 2005, sector groups are now de rigeur in the legal market. There is a general consensus among the partnership that the firm now, more than ever, needs to differentiate itself from its rivals to win big-ticket work from clients. ‘All the partners talk sectors and I think the critical point is to take that huge investment in people and sectors and project it more effectively into the market as a differentiator,’ says Dawkins.

Senior service

At the time of going to press Simmons was due to elect a successor to Dickinson as senior partner. The election was expected to take place at the start of this month.

Unusually, six candidates have put their names forward for the post, with Dawkins coming up against litigation partner Colin Passmore, corporate partner Charles Mayo, French head Thierry Gontard, litigation partner Philip Vaughan and energy specialist Patrick Wallace.

The feeling among the market is that Dawkins is a shoo-in for the post. ‘There is a huge loyalty factor which weighs in Dawkins’ favour,’ observes one former partner, while another says: ‘By electing Hoyland, it is key that Dawkins gets the top post. They need good managers.’

‘Qatar is the real jewel in the crown in the Middle East and has real potential for growth.’
Hans-Hermann Aldenhoff, Simmons & Simmons

Whoever joins Hoyland at the top of the firm’s management it’s clear that improving profitability is a key goal. ‘The sector focus is great. Also, as a firm, we could be more profitable and there are various ways that we can achieve this,’ comments London partner Andrew McMillan.

Sustainable growth in the firm’s international network also looks like a top priority, particularly considering that so much of Simmons’ business is focused around financial institutions and energy, two of the sectors that have embraced globalisation the most.

Many partners put their faith in Hoyland as managing partner and feel he’ll take the firm in the right direction. ‘Jeremy is a strong worker and is really driven,’ says London partner Darren Fox.

Projects partner Juliet Reingold, who’s known Hoyland since she was a trainee at the firm, is also very supportive of the firm’s new managing partner. ‘He engages with issues and there will be a strong focus on the firm’s profitability,’ she says. ‘He gives straight and direct answers and will say what he thinks. He will be a very solid manager and will take a pragmatic and direct approach to tackling the strategic challenges the firm faces.’

The timing of Hoyland’s takeover has been welcomed by partners. ‘Change is good. It’s great to have a conversation about change,’ says McMillan. As long as it’s change Simmons partners can believe in. LB