TMT leader Olswang is hard to pin down these days as profits ebb, reports of discord emerge and a leader suddenly departs. Can the firm push on with its ambitions to take brand Olswang global?
‘David is in back to back meetings every day for the next four weeks,’ says the Olswang staffer. ‘It would be just impossible to set up a call.’
The Legal Business correspondent listens to another evasive response after again asking to speak to Olswang’s then chief executive David Stewart. It’s not very convincing.
The attempt continues, with written questions and statements passed between reporter and Stewart over the next few weeks. All very strange for what was supposed to be a relatively short state-of-play piece on the 370-lawyer firm, not a dramatic exposé, and doubly odd given Stewart’s typical ease and good humour with the media.
It soon became apparent that these requests were being made at a sensitive time for the London media leader. On 6 October, Olswang abruptly announced that Stewart was unexpectedly stepping down from his leadership role 18 months ahead of his term-end, after seven years of leading the firm. Before the end of the month, Stewart had left the firm with no confirmed next career move.
The news surprised at least some of the firm’s partnership, sparked a whispering campaign in the City and triggered another round of prickly negotiations with Olswang for comment.
The firm, long renowned in the City legal community for its clear identity and glamorous TMT associations, has moved into less certain and more challenging territory in recent years, as it strived to establish itself as a broader corporate adviser with a credible international footprint to boot. Not everyone has been convinced the move into a packed mid-market is either wise or viable for a firm that once had such a defined identity.
Stewart set hugely challenging goals for the firm and none more ambitious than the attempt to rapidly globalise a firm with the limited resources of a mid-tier London player.
Such goals have taken their toll on profitability, with Olswang having fallen behind broadly comparable peers such as Taylor Wessing, Osborne Clarke and Mishcon de Reya, which currently rank 21st, 27nd and 37th in the Legal Business 100 chart respectively. From the peer group, Olswang, which ranks 33rd, was the only firm to report a decline in profits per equity partner (PEP), dropping 4% to £491,000 in the 2013/14 financial year. In comparison, Mishcon de Reya’s PEP soared to £975,000 – against a top-100 PEP average of £640,000.
And competitive profitability was a key part of the Olswang game plan. Back in 2009, Stewart set a public five-year target of getting PEP between £700,000 and £750,000.
Not only has this target been missed by a long shot – such a goal would have arguably forced Olswang to address what critics argue is a key weakness: a relatively laid-back partnership yet to wake up to the intensity of competition it now faces.
In a forced ten-minute call with Stewart prior to his resignation, he says: ‘In a year where we haven’t delivered the result that we planned, where we missed our profit target, I think it’s only human to feel some concern.
‘Five years ago, we had a notional target, but to posit a PEP target of £700,000-£750,000 from where we currently sit is unrealistic. Right now, I’m not satisfied with our partner profits; this needs to improve. I am very focused to deliver improved profitability and at the same time to ensure we get the most out of our current international network.’
Two weeks later Stewart had stepped down.
‘I have a lot to catch up with’
Stewart’s resignation leaves Olswang in a state of flux. ‘Having spoken to a lot of young partners in particular and some of the associates, it definitely did come as a surprise,’ concedes commercial litigation partner Ashley Hurst.
At the time of the resignation, Olswang senior partner Mark Devereux said: ‘The announcement came as a bit of a surprise, but these things happen. David has been doing this for seven years and has taken the decision to step down. He created an incredible legacy and has been in charge of the international strategy – it’s a big job.’
Although it is still unclear why Stewart resigned, several individuals have claimed that Stewart’s exit was not voluntary, citing tensions with Olswang’s board, a claim the firm refuses to deny or comment on.
One managing partner at a rival City firm with knowledge of Olswang comments: ‘There was always a difference in opinion between Stewart and Olswang’s other top dogs. Stewart wanted a global label, but it was costing the firm and the others just didn’t like it.’
Devereux did concede there was ‘a difference in views on strategy, upgrading elements of the firm, office expansions and firm spending’. One former Olswang partner adds: ‘The fact that Olswang’s profits have been dropping for two years would have been a big problem for Stewart. He has always wanted PEP above £500,000.’
Olswang turned to intellectual property (IP) veteran and European patent litigation head Michael Burdon to replace Stewart, though this remains a caretaker appointment. ‘It has all been a little manic and I have a lot of information to catch up with. My head’s still spinning a little bit,’ says the Australian-born Burdon. ‘I have been with the firm for over 12 years now, and have been in a succession of different leadership roles, so I have pretty good knowledge of the firm. I have also been instrumental in setting up a couple of the offices, so I have been closely involved with management.’
Burdon, who heads the firm’s European patent litigation team, told Legal Business that he will only remain in the leadership role for a maximum of 12 months, after which he will step down to focus on his client-facing role within patent litigation. ‘There are some really exciting things happening over the next few years with a brand new European unitary patent court. I have been closely involved with that and really want to be at the forefront when that new court opens for business,’ he says. ‘Realistically, the chief executive role for a firm of our size and aspiration is a full-time role, and I’m not quite ready for that just yet.’
Olswang has one year to run a full partnership vote and elect a new permanent chief executive. Arguably even more important than settling on a new leader will be defining a strategy the firm can unite around.
Under the bonnet – Olswang’s practice and key clients
Olswang is a transactions-led firm that has maintained a respectable place in the mid-market and upper mid-market for tech and media clients.
The firm had a robust year in 2013, and managed to close 80 M&A and joint venture transactions for media clients, including Warner Music Group, ITV and Maverick Television.
The firm handled a number of cross-border transactions this year, including advising customer science company and Tesco subsidiary, dunnhumby, on its acquisition of Berlin-based global advertising technology firm, Sociomantic Labs, from KBN Investment Group; and representing US media giant Viacom International Media Networks on its acquisition of Channel 5 Broadcasting for £450m.
The firm’s corporate team comes highly ranked in The Legal 500 within M&A for mid-market deals valued between £50m and £250m. Corporate head Fabrizio Carpanini has long had a prominent reputation, with highlight deals including advising mid-market private equity house Graphite Capital on multimillion-pound deals, one being the £260m sale of Alexander Mann Solutions, an independent provider of recruitment process outsourcing, to US private equity house New Mountain Capital; and the sale of The Third Space, one of London’s leading health and fitness clubs, to Encore Capital.
The firm is also ranked in tier one within defamation and privacy, with Geraldine Proudler, who heads the reputation and media litigation practice, remaining one of London’s most high-profile media lawyers. Clients in the area include News International and Guardian Newspapers. The firm, of course, also has a strong showing in IP and media finance – BBC Worldwide is another major client.
The firm is also in band one for IT and telecoms, and recently acted for Microsoft in contentious matters and advised Vodafone on a joint venture with Sainsbury’s. Some key partners within the team include: Clive Gringras, who covers litigation and commercial/transactional work; co-head of Olswang’s telecoms practice Purvi Parekh; and technology and sourcing partner Dominic Dryden, who acts for clients like BP and Unilever.
The firm’s corporate practice contributed 26% towards gross fee income at the end of the financial year 2013/14, making it the firm’s largest practice. This was followed by disputes (19%), commercial (17%), IP (15%), real estate (12%) and finally finance (7%).
David Stewart commented before his departure: ‘While it is fair to say that patent litigation is a very strong part of our IP practice, you will also see that IP, and therefore patent litigation, is not our strongest practice area in terms of revenue breakdown, but it is growing.
‘We have seen very strong results from Germany, Belgium and France, and a significant contribution from Asia. Germany had strong technology and real estate revenues, partly driven by an international inbound investment boom in Germany, chiefly from North America. We have built a larger team in France and it has been doing well, especially in corporate and litigation, but also in IP.’
The firm has also managed to generate modest growth in London, with fee income growing steadily year-on-year, bringing in £89.7m in the last financial year, up from £86.2m in 2013. Stewart said the City real estate practice showed a positive rebound; this was despite real estate finance head Eleni Skordaki quitting after ten years to join Dechert and Olswang coming off Legal & General’s panel after the insurer cut its adviser roster from 19 to five in October last year.
‘It’s always disappointing when you don’t get back on the panel,’ says litigation head Richard Bamforth. ‘But, there are always lessons to be learnt and you should be asking clients for feedback on why you haven’t got back on the panel, and you get back on the horse, maintain the relationships and endeavour to do it again.’
Nonetheless, the firm’s client base has developed to include large FTSE 100 companies outside of the technology sector. Olswang this year won a place on Unilever’s first formalised panel, while also retaining its panel position on oil and gas giant BP, and Vodafone, illustrating the firm’s expansion outside of its traditional media and technology-based clientele.
Gringras adds: ‘You would not think we were an oil and gas law firm or know much about drilling and petrol pumps, but we are on BP’s panel. We have been instructed to work for Tesco on technology issues, even though we don’t know a great deal about food distribution. Technology is core to every FTSE 100 company. Every single one is devastated when its customer database is hacked.’
In the red
Taking the global road has inevitably been expensive. Olswang’s limited liability partnership filings in January 2014 revealed its bank overdraft grew by £3m to £18m in 2013, while net debt increased from £8.4m to £13.7m. These figures came alongside operating profit falling by £1.3m.
One former partner claimed the firm called on its partnership for a capital boost earlier this year, which Stewart categorically denied. However, Stewart did state that over three years ago Olswang reinstated a policy to retain around 4-5% of distributable partner profit to augment working capital. Around this time, the level of capital contribution changed from a flat rate to a reduced rate for junior partners and an increased rate for senior partners, while the net contribution remained the same on average.
Stewart said the firm’s new premises, and investments in new partners and foreign offices, led to the borrowing increase.
He commented: ‘We have always had borrowings at around 10% of turnover. We had a deterioration in our lock-up and that, together with a few other local factors, increased our borrowing requirements. I’m not worried about it; it’s not a crisis or a drama. But certainly, I am very focused on improving our lock-up overall. I would expect to see our overall borrowings come down as a percentage of turnover from where it was last year, over the course of the next two years, as we focus on improving our working capital management.’
Nevertheless, in terms of revenue growth, Olswang did manage a respectable 5% rise to £319,000 in revenue per lawyer for 2013/14. Gross turnover also grew from £110m (as reported in the firm’s latest LLPs) to £117.6m, posting an increase of 7%. The firm also posted a double-digit increase in turnover of 11% to £63.9m for the first half of 2014/15, compared to £57.6m for the same period in 2013/14.
In 2009, Olswang’s gross fee income stood at £89.2m, meaning the firm has increased its income by 32% over the last five years – partly due to the firm’s record breaking financial performance in 2012 – when revenue rose 17% and PEP was up 30%.
Growing pains
Having launched as a breakaway from London property practice Brecher & Co, a dash of flair has long made Olswang stand out against older and far larger City counterparts.
High-profile chief executive Jonathan Goldstein, who led the firm for nearly a decade from 1997 to 2007, was a key force behind the firm’s rapid expansion during its middle years. He was also instrumental in securing the takeover of DJ Freeman’s property team in 2003, which added in the region of £4m worth of turnover to Olswang’s existing real estate team. The move resulted in the firm diversifying from its core technology media focus. This shift was again evident in 2005, when it agreed an alliance with Miami-based giant Greenberg Traurig.
While Olswang was increasingly at pains to portray itself as a maturing City institution – the firm was alongside SJ Berwin as London’s most famous upstart, having only launched in 1982 – by some accounts living up to the more staid image was challenging. The firm was culturally and structurally individualistic and retained something of the boutique about it. While the forceful, young Goldstein was well suited to Olswang’s image as a thrusting challenger brand, some felt he lacked the attention to detail and temperament suited to the firm’s size and new corporate ambitions.
While this dynamic caused some disquiet, Goldstein had become very much the public face of Olswang, even though founding partner Devereux remained with the firm in a senior role. There was clear sensitivity when Goldstein stepped down in 2007 to become joint managing director of property client Heron International, with litigator Stewart named as his successor as managing partner (his title changed to chief executive in 2010). Journalists from several titles were summoned to the firm’s offices to be told the announcement amid much secrecy, leading to some eye-rolling at the dramatics from attending reporters.
However, Stewart rapidly went on to establish himself as a driving force behind the firm’s attempt to refashion itself as a credible international player and himself a prominent figure in London’s legal community.
Stewart also attempted to bring more discipline and efficiency to the firm, including extending outsourcing and shifting more fee-earners to its lower-cost base in Reading.
More dramatically, he oversaw the firm opening offices in Singapore in 2012, Paris and Munich in 2011, and Madrid in 2010. Stewart was also in support of a merger with US corporate technology leader Cooley. The two firms had in late 2010 agreed an 18-month non-exclusive alliance after Greenberg Traurig opted to launch its own London arm. Many saw the alliance with Cooley as a likely precursor to a merger.
There were indeed discussions about a tie-up, but there remained a huge profitability gap between Olswang and Cooley. A deal would likely have meant stripping down Olswang substantially to the most profitable elements of its technology and media practice, and the larger Cooley would have been in the driving seat in a straight takeover. On paper, such a union made a lot of sense, but it was too much for Olswang’s partnership – talks fell through after partners opposed the idea during a retreat in 2012, leading to the end of the alliance.
Stewart remained popular and was easily re-elected as chief executive in a high turnout poll for another three years in April 2013.
Talking of his reign, Olswang litigator Hurst reflects: ‘David was very supportive, but the reality is he was a very busy man. He certainly had presence, was greatly respected and had very clear views. But he would also be supportive and send e-mails in the most surprising times in support of something that I was doing. This always felt good from a young partner’s perspective.’
For incoming chief executive Burdon, the priority list is different. Burdon says, somewhat gnomically, that the first thing he will be doing is restoring the firm’s cultural values. ‘We got the partners together on Tuesday morning [the day after the announcement of Stewart’s resignation] and managed to get a good attendance at short notice,’ he says. ‘The chairman of the firm and I addressed the partners and said we didn’t anticipate that there would be any significant changes and there was nothing for people to be overly concerned about. It was a sad moment, but these things do happen. We want people to move on with their client-facing activities as soon as possible. We got a good reaction from the partnership and people are feeling optimistic.’
A snapshot of Olswang’s financials across the last five years (taken from Legal Business 100) |
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| Financial year | Global revenue (£m) | Net income (£m) | PEP | UK revenue (£m) | International partners |
| 2013/14 | 117.6 | 23.1 | £491,000 | 89.7 | 36 |
| 2012/13 | 111.3 | 20.4 | £510,000 | 86.2 | 32 |
| 2011/12 | 108.1 | 23.2 | £567,000 | 86.5 | 8 |
| 2010/11 | 92.6 | 24 | £435,000 | 79.8 | 8 |
| 2009/10 | 91 | 25 | £422,000 | 83 | 10 |
The same but different
Slightly contradictorily, while there have been allusions to differences over strategy, Olswang has also indicated there will be no shift in strategy post-Stewart.
At the time of Stewart’s exit, board chairman and Belgium managing partner Dirk Van Liedekerke said in a written statement: ‘The board will continue to oversee the execution of our [international] strategy. We have built an unparalleled TMT practice as well as a commanding reputation for changing the face of business in a wide range of other industries, from real estate to retail and life sciences to leisure. The firm will continue to grow, in line with the investment priorities agreed with the partners.’
The strategy so far – under Stewart’s governance – has included four office openings outside of its homeland in the past five years, compared to one in the five years before that. Its most recent venture of a corporate-focused TMT arm in Singapore marked the firm’s entry into the Asia market, advising clients like Tune Hotels, euNetworks, entrepreneur Tony Fernandes, Visa, Tata Group, Telstra, PayPal and Microsoft. The office now houses a team of eleven lawyers, including four partners.
In July 2011, the firm launched in Munich – its second office in Germany, alongside its Berlin arm – at the request of technology giant Microsoft, to focus on IP work. In May this year, the Munich patent team bulked up with the hire of Herbert Kunz to head its patent filing and prosecution practice, and five other lawyers from boutique firm Dr Kunz & Kollegen. Five months before the Munich launch, the firm set up in Paris and in Madrid in September 2010.
The firm also recruited ten lateral partners in its last financial year, including the high-profile hire of former Linklaters TMT head Sylvie Rousseau, boosting its Brussels and Paris practices, as well as taking Orrick, Herrington & Sutcliffe’s IP/IT head Andreas Splittgerber, to enhance its German European data protection and sourcing practice in January. These investments came on the back of the firm’s non-UK offices generating 20% of the firm’s revenue in 2012/13, which grew to 25% in 2013/14.
The firm has other plans too. Before his resignation, Stewart talked of the firm switching its focus to China, the Association of Southeast Asian Nations and the US. ‘These regions are TMT hubs, and therefore have high-growth potential and a need for our sector-focused skills.’
Olswang is also interested in breaking into Myanmar and Thailand to offer telecoms advice, and into Malaysia for major telecoms projects and technology advice. The firm aims to push deeper into China off the back of its relationship with Chinese multinational company ZTE Corporation, while the US West Coast is another area of interest. ‘Few technology clients are headquartered in the UK or Europe really. Silicon Valley is the largest creator and destroyer of technology companies, and the largest supplier of capital to technology companies,’ says technology head Clive Gringras.
Such ambitions raise the question of how Olswang can keep up the costs of expanding abroad without hurting its partner profits.
A deeper point is whether Olswang’s partnership is genuinely united and driven enough to accept the sacrifices that will be required to successfully execute what will be, by any yardstick, a hugely challenging strategy with little financial margin for error.
It is not necessarily apparent from talking to a range of Olswang partners that the scale of that challenge – and the level of competition the firm faces – has sunk in. The obvious danger for the firm is a period of drift setting in.
Hurst comments: ‘The reality is the chief executive doesn’t have a great deal of day-to-day involvement in most lawyers’ lives unless you are involved in management. So from our perspective, it doesn’t really change very much. One of the reasons I joined nine years ago [from Hogan Lovells] was because the partnership was young and fresh, and all got on fantastically well, and that has not changed. We are quite fortunate that we do have a very clear strategy and that is very helpful. Who the chief executive is almost secondary to the priority of having a clear strategy, and knowing all the partners are working together and get on well.’
There is also the possible complication of Cooley’s impending launch. The Bay Area-bred law firm is currently putting together a deal for a sizeable London launch that involves a large team from Edwards Wildman Palmer. However, with Edwards Wildman’s practice tilting more heavily towards insurance than Cooley’s core tech client base, the top-100 US law firm is by at least one account aiming to pull together partners from other firms, potentially including Olswang. Cooley’s profits – currently averaging $1.57m a partner – would obviously give the firm considerable fire power to recruit high-billing partners from Olswang.
A tight-knit partnership has proved relatively resistant to predatory lateral raids, but there will be a limit to that defence.
Such challenges await the new chief executive. Ultimately, Olswang is sure to face some major decisions about whether it pursues a merger, strips down or attempts to carry on its current path. These questions may prove a lot harder to evade than annoying reporters. LB
jaishree.kalia@legalease.co.uk