Stepping Up – Clifford Chance’s corporate revolution

Clifford Chance’s corporate practice had a stonking year in 2012, rocketing up the league tables and scoring roles on four of the ten largest M&A deals globally. Little wonder Matthew Layton was handed a second four-year term at the helm. Vive la revolution.

By anyone’s measure, Clifford Chance (CC) had a stupendous year for M&A work in 2012, appearing on four of the ten largest deals that took place worldwide and ranking second at year-end by deal value, up from 22nd two years ago. According to mergermarket, CC worked on 197 announced deals with a combined value of £156bn, nudging ahead of Freshfields Bruckhaus Deringer and relegating Linklaters to fifth in the league tables.

Revenue-wise, corporate work accounted for close to £400m, around 30% of the firm’s income in 2011/12. This is getting closer to corporate-dominant firms such as Linklaters, which pulled in £465m, 38.5% of its total revenues.

In a tough market, for a firm known for private equity and finance ahead of public M&A, that’s impressive. It is starting to look like change is afoot. Since Matthew Layton took over the global corporate practice in 2008, transformation into a dominant corporate powerhouse has been high on the agenda. At the end of Layton’s first four-year term, he can feel rightly chuffed with himself. His rainmaking capabilities as a private equity partner were undisputed; now it seems he’s got the knack of leading an 800-lawyer global corporate practice to greatness too.

‘Other firms don’t have people like Matthew. He is an incredibly energetic and enthusiastic visionary.’
Steven Fox, Clifford Chance

CC’s recent success is all the more impressive given that in 2009 the firm’s corporate practice was undoubtedly in the doldrums following the high-profile departure of private equity specialist Adam Signy to Simpson Thacher & Bartlett and an announced round of redundancies affecting around 70 lawyers, including those working in the corporate department.

Rivals are suitably impressed. The managing partner of another City firm says: ‘I rate Matthew Layton extremely highly – he’s a very able lawyer.’

Some thought taking the guru from the top of the buyouts team and putting him in an international management role was folly, particularly as the private equity industry entered an unprecedented period of upheaval that would put its favoured lawyers on speed dial. Layton proved them wrong.

 

Onwards and upwards

Layton didn’t pick the best time to take the reins of a major law firm’s corporate practice, however. ‘Since I took over as global head of corporate at CC in November 2008, we have operated within financial and M&A markets that are full of uncertainty, turmoil and disruption,’ he explains. ‘However, despite these difficult times, I’m proud to say that the corporate practice has gained in strength, reaching the top spot in mergermarket’s M&A league tables for the first three quarters of 2012.’

Skadden, Arps, Slate, Meagher & Flom may have pipped CC to the post in the global tables at the last minute, taking the top spot after a spate of large deal announcements in Q4 of 2012, but the silver medal is not to be sniffed at in Upper Bank Street.

In 2008 CC ranked tenth in the league tables by value, but that was largely as a result of volume: the corporate team did 271 deals that year; the average deal size was £644m. In 2012 it stands at nearly £800m. And things got worse before they got better: in 2010 things looked dismal, with an average deal size of just £336m and a ranking of 22nd as the firm suffered largely on the back of its financial services focus.

Layton took action in 2009 to broaden the firm’s appeal, and was a driving force behind the firm’s new sector approach, which saw partners and senior associates each allocated one of 13 industry sectors to focus on. No longer would the firm be tagged as simply the banks’ advisers, the thinking went; instead industry specialisation was put at the heart of the strategic vision. CC’s corporate stars now pin their flags to the mast of either banks; consumer goods and retail; communications, media and technology; energy and natural resources; government and public policy; healthcare; industrials; private equity; real estate; transport; financial regulation; insurance; or investment management.

‘We’ve been international longer than any other firm. It’s that combination that’s created opportunities.’ David Walker, Clifford Chance

The result: in 2012 private equity, healthcare, energy, financial regulation, insurance, consumer goods and industrials performed particularly well. CC advised the sponsors and financial advisers on Glencore International’s $70bn acquisition of Xstrata, with a team led by equity capital markets partner Adrian Cartwright in London; worked for Mondel?z International on the spin-off of its North American grocery business Kraft Foods Group (Sarah Jones in New York, Robert Crothers in London and Guy Norman in Dubai); and helped AB InBev on its $20.1bn acquisition of Mexican brewer Grupo Modelo. Crothers and Amy Mahon in London worked with Alex Cook in Prague for AB InBev.

Other plum jobs saw the firm, led by Emma Davies in Hong Kong, work for Pfizer on the sale of its nutrition business to Nestlé for $11.9bn, and for The Royal Bank of Scotland Group on the sale of RBS Aviation Capital to Sumitomo Mitsui Financial Group for $7.3bn, with a team run by London partners David Pudge, Joel Ziff and Simon Tinkler.

Mondel?z International was particularly impressed with the firm’s work on its spin-off from Kraft Foods. ‘Our corporate spin-off was a huge undertaking and Clifford Chance was one of the legal counsel firms we used to help us in that process. We were very satisfied with their work and the overall partnership,’ says a spokesperson for the company.

And that’s not to forget the firm’s tasty appointment – led by Layton himself – to advise Dutch aerospace group EADS on its potential tie-up with BAE Systems – a £30.5bn deal that collapsed in October when the UK, French and German governments failed to reach agreement on the political aspects of the defence merger.

Layton has made the new sector approach a reality, and is perceived to have slotted in well to the leadership role. ‘He’s got a very different approach to David Childs [managing partner of CC and the former head of corporate],’ says a client of CC. ‘Matthew is much more collaborative and inclusive. He has a much more open style.’

And he’s not afraid to get his hands dirty. ‘I understand that he’s still very much involved in transactional work,’ says a corporate partner at a rival firm. ‘We’ve seen him involved in some deals that we were on the edges of,’ they say.

When the firm lost Signy in 2009, the panic very nearly set in. CC talked of the next generation of rainmakers, while outsiders wondered who would step into Signy’s shoes, particularly as Layton stepped up into management (and his fellow private equity hotshot Tinkler took on the London head of corporate role). Some big-name lateral hires, in the form of M&A veterans like Steven Fox, who joined from Ashurst in 2010, and Tim Lewis, who moved over from Macfarlanes in the same year, helped quieten the doubters. Both could have gone anywhere.

‘When I met Matthew, I hit it off with him,’ says Fox. ‘He has enthusiasm, vision and drive. Other firms don’t have people like Matthew. He is an incredibly energetic and enthusiastic visionary.’ While no man is bigger than the firm, Fox says Layton is someone the team would ‘follow over the trenches’.

A corporate partner at another firm says: ‘Matthew would be very strong on building the team and dealing with some of the momentum and team spirit. He’s that sort of man.’

That’s the kind of leader a firm needs if it’s going to change the status quo. It’s possible his time has come. ‘The established M&A firms don’t want to admit that there is a new player. CC has established its credibility at the top table,’ says Tony Williams, principal at Jomati Consultants and former managing partner of CC.

 

Any which way but down

Many attribute CC’s race up the M&A league tables last year to a move away from its historic silo-type business towards the sector focus and better teamwork under Layton. There was a time, not so long ago, when CC’s corporate practice in London was split into private equity, public M&A and private M&A, but things seem to have improved since that was dispensed with a few years back. The equity capital markets (ECM) partners have also been taken into the fold.

An ex-partner says: ‘In Linklaters and Allen & Overy you often get the equity capital market guys in the corporate practice, whereas in CC the ECM guys were in different departments. They work together better now and ECM counts for the corporate figures,’ he says.

The ECM practice has been doing well in its own right, and ranks in the first tier of The Legal 500. Led by London managing partner David Bickerton, and also including emerging markets expert Cartwright, in recent years the team has advised the underwriters on the $10bn Glencore IPO (which led to the role on the Xstrata deal), and acted for NOMOS-BANK on its $700m debut, the largest London IPO of a Russian company.

‘Our objective is to retain this success – with the combination of global and regional strength – in the future.’ Matthew Layton, Clifford Chance

Land Securities’ general counsel and company secretary Adrian de Souza thinks that the move towards combining practice areas has been a success. He was happy with the firm’s advice on his company’s share purchase agreement with Capital & Regional and AREA Property Partners, a deal worth about £110m.

‘CC fielded a team that was seamless for our deal, with the different specialist teams being perfectly integrated. It wasn’t obvious who were the fund lawyers and who were the corporate lawyers,’ he says.

Of course, any firm can have a good year in M&A without changing the face of the league tables long term. And no one is denying that CC did well to benefit in the rankings from what was essentially a financing role on the Glencore/Xstrata deal, on which Linklaters and Freshfields did the lion’s share of the corporate work.

But maybe CC’s time has finally come. David Walker, a corporate partner and global head of the private equity group, admits: ‘One or two deals can skew league tables, especially at a time when there are relatively few massive deals. But we are built for big, hairy, cross-border deals.’

He says the move to specific sectors that better reflect client needs, coupled with CC’s international network, are key to the firm’s recent success.

‘We’ve been international longer than any other firm. It’s that combination that’s created opportunities,’ says Walker.

CC has focused on global companies for a long time, over and above FTSE 350 companies, and today its largest corporate clients include the likes of Volkswagen, Barclays, EADS, International Power and Pfizer. As a rival managing partner puts it: ‘The firm has spent decades investing in its global network and it’s not surprising that they’ve got something pretty powerful.’

Tinkler, the London head of corporate, says that using CC is like ‘having 2,500 phone-a-friends’. Harnessing that power and making it work seamlessly for clients new and old has always been the firm’s greatest challenge. Looking forward, that’s what Layton will have to get to grips with to prove 2012 was no flash in the pan.

A trot around the globe, according to CC, shows reason to be cheerful. Kem Ihenacho, a corporate partner and co-head of the firm’s Africa group, says that activity there is moving away from just natural resource deals into the telecoms and financial services space.

 

 

Major corporates like Walmart are looking for opportunities in the region; last year CC advised the US retail giant on its acquisition of the African consumer goods retailer Massmart for $2.4bn. In the same month, the firm advised longstanding client Kraft when it bought the remaining stake in the Morocco biscuit business Bimo for $151m. Ihenacho is also acting for major private equity houses looking at the region. CC acted for The Carlyle Group, who alongside Standard Chartered Private Equity invested $210m into Tanzanian agriculture business Export Trading Group in November last year.

In the Middle East, CC worked on Qatar National Bank’s acquisition of Société Générale’s Egyptian unit for $1.97bn in December last year. And the firm topped Thomson Reuters’ league tables for Middle East and North African deals in 2012, working on $5.3bn of deals and securing a 10% share of the market. But according to Tinkler, the three main emerging markets for CC are Latin America, sub-Saharan Africa and Asia. Latin America would traditionally look north for its legal advice to New York firms but CC advised on the LAN/TAM merger alongside corporate heavyweight Sullivan & Cromwell in a deal between Chilean and Brazilian airline companies that created one of the largest airlines in the world, with combined revenues of $14bn.

Javier Amantegui, a CC corporate partner specialising in Latin America, sees the region as extremely important: ‘The countries are growing steadily – the average GDP growth is about 6.2%, which is well above Western economies. This means increased spending power for consumers, companies’ expansion and focus of interest by investors, which will continue fuelling regional and international inbound and outbound M&A, the sort of transactions our firm is best placed to advise on.’

In 2012 CC was overtaken only by Skadden and Sullivan & Cromwell in the Thomson Reuters’ Latin American tables, ranking third against eighth last year, and working on $25bn worth of deals.

 

 

Ups and downs

Layton certainly sees 2012 as a sign of things to come. ‘I feel confident we can grow our leadership position even further. Asia, Europe and the US continue to be a focus for the firm as we look to this year,’ he says.

Worldwide, the inevitable return of leveraged buyouts will play to the firm’s strengths when it ultimately materialises, with signs of it already doing so on the other side of the Atlantic. CC came eighth for global buyouts by value and fourth by volume in 2012, handling deals including new client Cinven’s parallel acquisitions of Mercury Pharma and Amdipharm for a combined total of £852m, and advising Equistone Partners Europe on the sale of Global Blue, a VAT refund business, to Silver Lake for $1bn.

Following the moves by private equity partners Layton and Tinkler into management, there were fears of a rainmaker vacuum in the CC buyout team. Both remain active for the firm’s deeply entrenched and longstanding clients like The Carlyle Group, Capital Partners and Bridgepoint, however, and fellow partners Walker, Ihenacho, Jonny Myers and Spencer Baylin are among a raft of strong names on a bench that remains at the top of its game.

 

 

Beyond private equity, it will be the firm’s ties to the financial services sector that will put M&A volumes most at risk in the year ahead. CC is a leader in financial and insurance M&A but lots of those companies will remain focused on getting their balance sheets in order this year before transactions start to flow through.

Patrick Sarch is the partner focused on corporate work for banks and he is less than optimistic about financial sector M&A this year. ‘Transformational financial institution group deals are very difficult to sell to shareholders, the market and regulators,’ he says. Expectations that M&A would be driven by disposals of non-core assets under the pressure of capital requirements and state aid obligations have yet to become reality.

The other issue is conflicts. CC can’t always take the primary adviser roles on large M&A deals even if it is offered, because its swashbuckling finance partners often move quickly to sew up roles acting for the banks. ‘The problem they’ve got is that the business is affected by their relationship with our banks, who fund the securitisation structure that finances our acquisitions,’ says de Souza.

While de Souza had a specific problem with a conflict between CC’s corporate and banking practices, Williams doesn’t think the problem is endemic. He said that all the major M&A firms have banking clients and aren’t conflicted by these relationships.

‘An M&A transaction would be done with a combination of debt and equity. To the extent that there’s debt involved, you’re going to need a bank. So banking comes last. Just because CC has a strong banking practice doesn’t mean that they are going to be conflicted, as the banking comes last,’ says an ex-CC partner.

 

 

Of course, on the other hand, knowing how to finance a deal in this kind of market, and being able to manoeuvre innovatively around financing stumbling blocks, puts CC on the front foot. ‘The deal pipeline is good, but the pipeline is not the problem. Clients can see deals, whether it’s an IPO or an M&A opportunity, but the problem is how much it will cost and where the money’s coming from,’ says Fox.

2013 is not going to be an easy year for anyone, but focusing attentions on sectors and greater diversification could not have come soon enough at CC. But for now, there are plenty in the market that feel 2012 was a blip for the largest Magic Circle firm, in an otherwise mid-table performance. ‘They have had a good year but will we see them as high in the rankings next year? We are not so sure,’ says a partner at a rival firm.

Tinkler is far from complacent over the current market position. ‘Are we going to be number one continuously? Probably not. People will be jostling around for a period of time. Our ambition is to be ultimately number one. I don’t think I’d be telling you the truth if I said we are clearly number one yet,’ he says.

 

 

Layton adds: ‘While we are incredibly proud of our success in the M&A league tables, for us the focus isn’t necessarily about remaining at the number one spot. CC’s corporate practice has been consistently highly ranked in the global M&A league tables since 2000 and our objective is to retain this success – with the combination of global and regional strength – in the future.’

Nevertheless, after moving up almost 20 places in the rankings in two years and notching up nearly $100bn in additional deal value, the firm had an exceptional year that its rivals would have bent over backwards for.

CC needs a couple more year-end results like that to truly be in the same league as the likes of Linklaters and Freshfields, but with the quality of its global corporate client base and private equity making a return, that is entirely feasible.

CC worked with 226 of the world’s 500 largest companies in the corporate practice last year. If it can maintain those sorts of relationships, a place at the top of the global M&A tables could be secure for some time
to come. LB

david.stevenson@legalease.co.uk