Top Trumps, City-style – Who holds the cards in private equity?

If there’s one City practice that has barely paused for breath in recent years, it is private equity (PE). Global buyout values reached a record high in 2018 and, while Mergermarket data suggests the first half of 2019 slipped back somewhat, activity levels remain strong, with take-privates driving much marquee M&A activity.

This has only served to underline the drawing power of the sector’s top dealmakers and recent years have seen a flurry of lateral moves. Kirkland & Ellis, Simpson Thacher & Bartlett and Latham & Watkins are among the most potent threats to the Magic Circle, but others, such as Skadden, Arps, Slate, Meagher & Flom and Willkie Farr & Gallagher have also made investments to build out their City operations.

The revolving door has been spinning so quickly that The Legal 500 rankings have faced a tough task keeping up (so expect change this year). But while the winners and losers in the 2019 UK edition will not be revealed until the autumn, we take an early look here at how some of the City’s top PE practices are faring.

‘It’s like being given the keys to the most fabulous car in the garage.’
Charles Hayes, Freshfields

‘They’ve basically gone round the City playing Top Trumps,’ is how one leading PE partner describes Kirkland’s efforts in recent years. After picking up three partners from Linklaters between 2015 and 2016, the Chicago-born juggernaut set its sights on Freshfields Bruckhaus Deringer, following the headline-grabbing hire of Freshfields’ PE head David Higgins in 2017 with its hire of former colleague Adrian Maguire in January, securing two of the City’s best buyout hands.

Critics still argue the US firm is more about volume than value but Kirkland does not take umbrage at such claims, with finance partner Neel Sachdev asserting: ‘Our goal is to cover large-cap and mid-cap financial sponsor transactions across Europe. We see high levels of deal volume and are involved in more PE M&A and financing deals than any other firm.’

And in truth, the old mid-market dismissal of Kirkland cannot obscure the firm’s success in securing a string of big-ticket mandates, leaving even its biggest rivals to concede that the firm looks unstoppable right now.

With a client list including Advent International, Apax Partners, Bain Capital, The Carlyle Group and EQT among others, recent deal successes include advising The Blackstone Group on the consortium acquisition of Merlin Entertainments and handling EQT’s bid for Nestlé Skin Health.

Little wonder that few expect the recent exits of former Ashurst duo Gavin Gordon and David Arnold to Willkie to have a significant impact. Says Higgins: ‘Public-to-private transactions used to be the preserve of the Magic Circle, but US firms are now active in that market in particular for sponsor-backed transactions. We can now demonstrate that experience – the market has evolved and our PE clients want specialist and focused advice.’

Interestingly, while no-one questions what Higgins and Maguire add to Kirkland’s lustre, the consensus view is their exits have yet to do much damage to Freshfields’ much-vaunted European buyout business. The Magic Circle firm’s newly-appointed global PE head Charles Hayes says the practice saw double-digit growth over the 2018-19 financial year.

‘Our goal is to cover large-cap and mid-cap financial sponsor transactions across Europe. We are involved in more PE M&A and financing deals than any other firm.’
Neel Sachdev, Kirkland & Ellis

Alongside new London head Victoria Sigeti, Hayes is seen as a vital part of Freshfields’ young guard. The pair had been manning the fort since June last year while Maguire took time out for a sabbatical and, though less experienced than Higgins and Maguire, have rapidly built an external reputation to match the internal buzz they have garnered for years at Fleet Street.

Talking about the experience, Hayes says: ‘It was daunting at first, but the opportunities it has thrown off for the team have been fabulous, both individually and collectively. For the team it’s been a bit like being given the keys to the most fabulous car in the garage. The last few months have really brought the team together – it’s been a useful reminder that this is a team sport.’

And recent mandates show the firm on solid footing. Its relationship with CVC Capital Partners, which Hayes looks after, remains robust, with the firm leading on deals such as its investment in Premiership Rugby and its bid for a stake in GEMS Education in the Middle East. The firm also worked with Hellman & Friedman on its multibillion-euro bid for Scout24 and last year picked up a substantial UK matter for US buyout legend Kohlberg Kravis Roberts & Co (KKR), advising on the Trainline IPO. The firm has also secured more work from Carlyle (despite major UK investment from its go-to counsel, Latham).

A shifting dynamic

Elsewhere, a number of expensive transfers are shaking up the established order as advisers vie to secure work from booming sponsors increasingly needing multiple conflict counsel.

Simpson Thacher’s hire last year of Amy Mahon from Clifford Chance (CC) means the Wall Street leader now has another credible player to handle key clients like KKR and Blackstone, alongside the hardly-shabby line-up of Adam Signy, Derek Baird, Clare Gaskell, Wheatly MacNamara and Ben Spiers. Neither does it hurt that Simpson has built a potent funds and deal finance operation in the City.

Recent mandates highlight the strength of Simpson’s brand in take-privates – with multiple high-value matters including a lead role for Silver Lake on the largest take-private of 2018 – its £2.2bn acquisition of Zoopla parent ZPG.

Set against that, some rivals suggest Simpson Thacher is still feeling the impact of the return of former London stalwarts Greg Conway and Mike Wolfson to the US, and the exit of Alvaro Membrillera to Paul, Weiss, Rifkind, Wharton & Garrison, and that its stranglehold on some clients is beginning to weaken, particularly as Blackstone and KKR diversify their work. Its model also means it has not been targeting newer European clients as much as other US firms in London, resulting in a less diverse client base.

CC, despite the 2018 losses of Mahon and Brendan Moylan to Latham, remains a major force in private equity, even if the dominance it commanded a decade ago is now a distant memory. The team, under the leadership of Jonny Myers, maintains a superb client roster, including Blackstone, Cinven, CVC and Permira – a reminder that CC’s team is more resilient than rivals often allow.

Simpson Thacher’s hire of Amy Mahon from Clifford Chance means the Wall Street leader now has another credible player to handle key clients.

The key issue for CC will be to ensure it still has the partner talent coming through to sustain that resilience given both its bench and pipeline look smaller than rivals. But it is not just UK firms suffering from increased mobility. Weil, Gotshal & Manges rising star Samantha McGonigle left earlier this year to co-found growth fund Farview Equity Partners and the US firm is seen by some as in need of new talent to add range to a team led by ‘absolute star’ Marco Compagnoni, office head Mike Francies and unsung partner Jonathan Wood. Some suggest Compagnoni’s firm grip on key clients is both a strength and a weakness in building out Weil for the future, making it harder to attract big names or build the brand of those inside.

For now though, Weil’s mandates more than hold up to scrutiny, with 2018 a record year for the London PE team, which brought in more than 50% of the office’s $188m revenue. Significant client wins in 2018 include Bain (never easy to prise from Kirkland), AMP Capital and Europa Capital, with longstanding clients Advent, CVC, Blackstone, OMERS and Oaktree Capital Management. Earlier this month it picked up a key role for Bain on its acquisition of a 60% stake in $4bn market research business Kantar.

White & Case, meanwhile, is still regrouping after the departure of Richard Youle and Katja Butler to Skadden in 2017, but continues to work with clients including CVC, Anchorage Capital and Oaktree, and has been working more with Goldman. Youle is continuing to work with clients like HgCapital and Montagu at Skadden as well as picking up a first-time UK role for JAB Holding Company on Pret A Manger’s acquisition of EAT. In addition, Youle says the firm is also now working with UK clients like Hg in the US.

The jostling will continue. Sponsors are seen as the safest bet for M&A counsel amid Brexit uncertainty and in a market where in-demand partners can double their money with a single move, retaining position is challenging even for leading firms. And for every Magic Circle firm loyalist like much-liked Linklaters dealmaker Alex Woodward or Freshfields’ Hayes, there will be others willing to play.

georgina.stanley@legalease.co.uk