Nathalie Tidman assesses the fallout as M&A veteran quits an unsettled City giant
Even for a market grown blithe to big-name M&A partners quitting for the dollar, Kirkland & Ellis’s recruitment of Freshfields Bruckhaus Deringer’s David Higgins just before Christmas sent a jolt.
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Given that it has been so well telegraphed that the $10m lateral was coming to the Square Mile, the shock among City peers at the hire of Freshfields Bruckhaus Deringer private equity veteran David Higgins (pictured) has been, well, shocking. ‘Outrageous’, ‘obscene’ and ‘mildly appalling’ are among the reactions from peers. One hopeful partner at a US firm notes: ‘The clients won’t be impressed with that number splashed all over the news.’
But such sentiments are a naive reading of how the industry is evolving. Yes, if you think of a lateral as wrangling an immediate book of business, such a package suggests needing to preside over $30m within three years to be called a success on a conventional yardstick. That would certainly be a stretch – though not impossible given what some of the strongest City laterals have managed – but that is not the benchmark. Kirkland & Ellis has been stuffed with leveraged finance talent for years while lacking an unquestioned corporate A-lister. The hyper-productive Matthew Elliott delivered that when he joined from Linklaters in 2016, but his practice has a very precise real estate slant.
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Kirkland & Ellis continues to make waves on both sides of the Atlantic as the Chicago-bred juggernaut this week announced the hire of one of Manhattan’s top M&A names.
In the latest of a series of headline-grabbing moves, Cravath, Swaine & Moore M&A star Eric Schiele is to transfer to Kirkland’s New York arm. Schiele – who had been at Cravath for more than 17 years, making partner in 2008 – was established as one of the leading lights at the Wall Street leader.
The loss underlines the aggressive inroads Kirkland has been making in New York, including just over a year ago recruiting Cravath corporate partner Jonathan Davis. Kirkland had previously sent a jolt through the clubby Manhattan legal community in 2012 with its recruitment of Cravath.s rising star partner, Sarkis Jebejian.
The move also underlines the pressure increasingly facing traditional New York leaders with conservative remuneration models to retain their top partners as aggressive rivals dangle unprecedented packages.
While senior departures were until recently almost unheard of among the New York elite, another Cravath deal heavyweight, Scott Barshay, last year quit for Paul, Weiss, Rifkind, Wharton & Garrison in one of the most expensive transfers ever in the legal profession.
Such pressures are, of course, felt even more intensely by Magic Circle firms with Kirkland in December securing the services of Freshfields Bruckhaus Deringer’s most prominent private equity partner David Higgins in a $10m package. Other major London hires for Kirkland include Linklaters’ real estate M&A rainmaker Matthew Elliott and Freshfields finance partner Michael Steele in 2015.
Recent mandates for Schiele include acting for Disney in its pending $66bn acquisition of 21st Century Fox and Time Warner on a string of deals, including its pending $109bn sale to AT&T. He has also advised Honeywell on its $90bn proposed acquisition of United Technologies; Anheuser-Busch InBev on its $123bn acquisition of SABMiller and the $12bn sale of SABMiller’s US and global Miller branded businesses to Molson Coors.
Schiele said in a statement: ‘It was a difficult decision to leave Cravath and I will always be grateful for the years I spent there. But I’m excited about joining Kirkland, a firm known for leading on many of the most high-profile and complex M&A/PE deals globally and with an extremely dynamic team.’
Kirkland chair Jeffrey Hammes commented: ‘Eric is one of most respected transactional attorneys in the country. He will be an invaluable addition to our M&A and private equity practice in New York.’
The spectre of one of Manhattan’s feted M&A operators quitting for Kirkland will further fuel expectations that the 2,000-lawyer giant is set to announce another year of pace-setting growth. The firm was already challenging Latham & Watkins as the world’s highest-earning law firm with 2016 income of $2.65bn after hiking revenues by 15%. Kirkland’s average profits per equity partner are more than $4m, and set to rise dramatically for the 2017 financial year.
There will be plenty of prestigious rivals in New York and the Square Mile hoping that 2018 is the year that the Kirkland bandwagon finally slows.
Despite a recent overhaul of its partnership to reward top performers, Freshfields Bruckhaus Deringer has lost private equity heavyweight David Higgins to Kirkland & Ellis in one of the most expensive lateral hires ever in the City.
Higgins is set to join the US law firm as London co-managing partner in a deal worth around $10m a year, in one of the most significant UK departures ever from an elite London law firm. He will sit alongside finance playmaker Stephen Lucas on Kirkland’s core executive committee as its second London-based member.
Jeffrey Hammes, chairman of Kirkland, said: ‘Continued investment in our European business is a key strategic focus for the firm. David brings a combination of business leadership, commercial awareness and experience on top tier transactions which will enable us to continue to develop our European private equity platform.’
The announcement comes a few weeks after partners at Freshfields voted in favour of radical changes to the firm’s lockstep pay model aimed at hiking remuneration for top performers.
The move hands the Magic Circle firm more ammunition to retain top performers but did not stop one of its most prominent names in the City leaving for a US rival. Higgins had been widely touted internally to be in line for a 60-point deal under the shake-up, making him one of the few London-based partners to earn over the new 12-40 point ‘core’ ladder for most partners.
The 48-year old Higgins has long been viewed as a trophy hire for a number of US firms investing heavily in Europe’s booming private equity markets, reflecting the huge success of Freshfields’ top tier buyout team. Latham & Watkins was seen as a likely home for him. Latham, however, insisted that no discussions have been held.
The Kirkland deal is worth $10m annually, putting Higgins near the top of its equity structure and making it one of the most expensive lateral hires ever in Europe’s legal market. The deal is not, however, structured as a multi-year guarantee.
Freshfields partner Simon Marchant insisted in a statement that ‘the strength and depth of our private equity practice across M&A, leveraged finance, high yield and real estate is second to none’ and ‘David’s departure does not change that’. He added: ‘We are grateful for David’s contributions over his time with us and wish him well in his new role.’
While there will be relief that as yet Higgins has not departed alongside colleagues, any further losses in the Freshfields team, especially of playmakers like Adrian Maguire and Charles Hayes, would be a body blow to the firm. As it is, the departure of Higgins caps off a year to forget for the City giant marked by poor financial results and a high profile shake-up of its c-suite.
For Kirkland the move brings in a heavyweight M&A hand to complement its muscular London leveraged finance practice. Said one Kirkland partner: ‘We don’t hire people looking for a pension plan, this is a guy with the will to win; we don’t buy business, we are buying quality DNA.’ The departure also underlines the dramatic inroads being made in the City by more profitable US advisers, particularly in private equity, leveraged finance and funds.
Marco.cillario@legalease.co.uk and Alex.novarese@legalease.co.uk
For more see Legal Business’s recent analysis of Freshfields shake-up of its partnership and our recent cover feature on the partners quitting the Magic Circle for US rivals (£)
Elite US firms ramped up their London partner headcounts in October, with Kirkland & Ellis making up a record 97 new partners – equal to more than 10% of its existing partnership – 13 of them in its fast-growing London base, while White & Case’s more modest 31 included seven in its City arm.
The number of London promotions at Kirkland more than doubled last year’s round and its total tally is up on last year’s 81. The 2,000-lawyer US firm has an unusual model in that it makes up large ranks of salaried partners before considering promotions to its tightly-held equity, which at the end of 2016 totalled 359 of its 820 partners.
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Underlining the meteoric rise of a group of elite US law firms, Kirkland & Ellis has unveiled one of the largest promotion rounds ever seen from a single legal partnership, minting 97 new partners, including 13 in the firm’s fast-growing City arm.
The number of London promotions is more than double last year’s round, when six lawyers were made up, and up on last year’s total tally of 81. It is also larger than the entire partnership of top 50 UK law firm Travers Smith.
Kirkland’s new London-based partners include Mark Thompson, Jacob Traff and Rebecca Villarreal, who have all been made up in M&A/private equity, while Mark Ingram and Frazer Money are promoted in the firm’s tax department. Jeremy Leggate and Aranpreet Randhawa have both been promoted in investment funds.
Andrew Butel has been appointed to the firm’s government, regulatory and internal investigations litigation team while Philipp Kurek has been made up in general litigation. Also on the disputes side, Jon Newman has been promoted in arbitration. Rounding out the London promotions are James Simpson (capital markets), Adam Skinner (financial services regulatory) and Christopher Wall (debt finance).
The remainder of Kirkland’s promotion round have been made up in the firm’s international offices spanning Beijing, Boston, Chicago, Hong Kong, Houston, Los Angeles, Munich, New York, Palo Alto, San Francisco, Shanghai and Washington DC.
The 2,000-lawyer US firm has an unusual model in that it makes up large ranks of salaried partners before considering promotions to its tightly-held equity. The firm had 359 equity partners at the end of the 2016 financial year, and 461 salaried partners. Those making it to equity benefit from one of the world’s most profitable law firms where plateau earnings now top $10m.
In a further expansion to Kirkland’s London arm, the firm this week hired James Watson as a restructuring partner from London firm Stephenson Harwood, where he was a senior associate.
Kon Asimacopoulos, a partner in Kirkland’s European restructuring group, told Legal Business: ‘James has got tremendous experience in leadership roles and clients love him, that’s a key factor for us.’ Kirkland has also hired associates Karim Kassam and Gabe Tan to strengthen its London restructuring team. Kassam joins from Freshfields Bruckhaus Deringer while Tan arrives from White & Case. The appointments come in the same week that Kirkland was instructed on one of the most high profile UK insolvency mandates of the year, the administration of UK airline Monarch.
Kirkland, which has built one of the largest City practices of any US-bred law firm, has made a concerted push to add depth to its London restructuring practice this year, already bringing in Freshfields partner Sean Lacey in May.
Freshfields Bruckhaus Deringer and Kirkland & Ellis have won advisory roles as Monarch Airlines filed for administration in the early hours of Monday (2 October).
The job – one of the most high profile corporate failures of the year – has attracted two of the City’s top insolvency teams, with Freshfields fielding a team under its veteran restructuring chief Ken Baird.
Big Four accountancy firm KPMG was appointed administrator for the airline after it stopped operating, leaving 110,000 customers stranded overseas and cancelling around 300,000 future bookings.
The announcement came after terror attacks in North Africa, the weak pound and an increasingly competitive aviation market took its toll on the UK’s fifth-largest airline, which reported a £291m loss for the year to October 2016.
KPMG UK head of restructuring Blair Nimmo and partners Jim Tucker and Mike Pink are joint administrators to the airline. Nimmo, Tucker and KPMG director Steve Absolom have also been appointed administrators to the group’s tour operator Monarch Travel Group. Its engineering operation Monarch Aircraft Engineering will continue to trade normally.
Baird and fellow Freshfields finance partner Catherine Balmond are leading the team advising KPMG. Kirkland is advising the Civil Aviation Authority (CAA).
‘While this timing is unusual in insolvency situations, it was necessary for the appointment to be made once all Monarch aircraft were on the ground,’ Nimmo commented in a statement, adding that the administrators’ primary focus for the first 48 hours was to work with the CAA on repatriating the customers due to travel back to the UK within the next two weeks.
After Monarch’s Air Operating Certificate was suspended with immediate effect on Monday morning, the government tasked the CAA with bringing back to the UK 110,000 people stranded overseas.
More than 11,800 were flown home on Monday on 61 flights. Around 44,000 others are expected to follow this week.
Stephenson Harwood has also picked up a role advising the Pension Protection Fund.
Founded in 1968, the Luton-headquartered airline operated flights to more than 40 destinations with a capacity of six million seats from five UK bases: London Gatwick, Birmingham, Manchester, Leeds-Bradford and Luton.
UK’s largest ever airline to enter administration, it had employed about 2,100 people, around 250 of them retained to help with repatriation operations.
Freshfields has previously acted for Monarch in two key deals in the airline’s 49-year history. The company secured the largest investment in its operations from Greybull Capital in October last year, meaning it was able to maintain its licences from the CAA for the following 12 months. The Magic Circle firm also acted for the airline operator when Greybull acquired the majority of the group in 2014.
With August drawing to a close, London’s simmering lateral hire market is already heating up again with DLA Piper, Pinsent Masons, Kirkland & Ellis and Debevoise & Plimpton among the firms bringing in new partners.
At DLA Piper, the firm’s finance team made its first hires since Maurice Allen’s appointment in March as a consultant, appointing ex-Kirkland & Ellis and Gibson, Dunn & Crutcher partner Philip Crump in London and Kirkland partner Doug Murning.
The appointment of the high-profile veteran Allen was touted as part of a bid to push DLA’s City finance practice up the food chain. Crump’s practice covers traditional sponsor and lender side leveraged finance as well as special situations and private deals for alternative credit providers. Murning, who will initially split his time between London and Hong Kong, is focused on leveraged finance and restructuring.
DLA’s international head of finance and projects Martin Bartlam said: ‘Phil is extremely knowledgeable and highly thought of in the leverage finance market. Doug is a well-reputed finance lawyer who provides immense energy, enabling us to further service the growing markets in Europe and Asia.’
Kirkland, meanwhile, was characteristically active in the transfer market through August, hiring Ropes & Gray investment funds specialist Anand Damodaran. The appointment adds to a striking recent run of recruitment between the two US leaders, unquestionably two of the most successful and ambitious US firms bred outside of New York over the last decade. Damodaran is the sixth partner Kirkland has taken from Ropes in the last two weeks following the hire of a five-partner investigations and government enforcement team from Ropes’ offices in the US, UK and Asia. The team compromised Chicago managing partner and global anti-corruption co-chair Asheesh Goel and Zachary Brez. Chicago anti-corruption partner Kim Nemirow, London-based Marcus Thompson and Cori Lable in Hong Kong made up the remainder of the group.
Pinsents also made a double City hire, boosting its corporate finance practice with Julian Stanier and Gareth Jones from Berwin Leighton Paisner (BLP), a duo specialising in advising investment banks, corporate brokers and other intermediaries. Recent work includes acting for BCA Marketplace (formerly Haversham) on its £1.2bn reverse takeover and Sanne Group on its IPO.
Elsewhere, Debevoise has hired Legal 500-ranked insurance transactional and regulatory lawyer Clare Swirski from Clifford Chance in London. The New York-bred law firm has long been established as one of the US’s most prominent industry specialists in the insurance sector.
Debevoise presiding partner Michael Blair said Swirski would be advising some of the firm’s largest institutional clients. He added: ‘Our insurance practice is centred on strong teams in key financial centres, which we have reinforced in recent times with promotions in Hong Kong and London. The arrival of Clare is the latest step in that strategy, bringing as she does a wealth of experience and a deserved reputation as one of the sharpest lawyers in the market.’
Further afield, Dentons has made another hire from Baker McKenzie in its recently-launched Amsterdam branch, bringing in corporate partner Kuif Klein Wassink. The firm had only just recruited a four-lawyer team to launch its tax practice in the city. Dentons, which operates as Dentons Boekel in the Netherlands, also hired two partners from Clifford Chance’s energy team – David Griston in Amsterdam and Petr Zákoucký in Prague.
A clearer test of the appetite for top level European recruitment will emerge in September, but indications so far are that major firms are shrugging off concerns over the City and the UK economy to keep spending.
Latham & Watkins has managed to retain 95% of its City trainees in its latest round, contrasting with Kirkland & Ellis, which has kept on just over half of its cohort.
Meanwhile Allen & Overy (A&O) and Freshfields Bruckhaus Deringer posted their autumn trainee retention rates this week.
Latham has kept on 21 of the 22 trainees for 2017, strengthening its corporate, finance and litigation departments. Numbers have improved from last year when the US firm kept 17 of 20, or 85% of its trainees.
In contrast Kirkland’s City office only managed to retain 56% of its nine trainees this year, with the figure slipping significantly from its 100% retention rate at the same time in 2016 when it kept all seven trainees. However, Legal Business understand the firm made seven offers, of which five were accepted, with the low figure attributed to a heavy demand by trainees for NQ positions in the funds practice, which was over-subscribed.
This week A&O announced that it has kept 85% of its 47-strong intake this autumn, making offers to 41 lawyers with 40 accepting. Its trainee retention rate almost mirrors last year’s autumn results when the firm took on 86% of its intake of 42. Thirty-six people joined the firm after 38 offers were made.
Conversely, Freshfields has posted a lacklustre 66% retention rate this time, with 27 lawyers taking up offers at the firm from a group of 41. The firm offered 29 roles to individuals. Last September, the firm kept on 95% of its trainees with 40 lawyers remaining at the firm after it brought on 42 trainees.
Slaughter and May has posted the most impressive retention rate of the Magic Circle so far, keeping 91% of its group of 32 autumn trainees. Offers were made to 30 individuals with 29 accepting positions at the firm. This is slightly down on 2016 when 34 offers were made for positions with 32 accepted, giving it a retention rate of 89%.
A statement by the firm said: ‘Our overall retention rate was again in line with previous years. We remain encouraged by our consistently high retention rates and are confident that all these talented lawyers will make a strong contribution to the firm.’
Elsewhere Pinsent Masons has taken on the largest contingent of trainees, with 67 taking up trainee roles at the firm in autumn, rate of 74%. Eighty four of the 91-strong trainee intake applied for NQ positions with the rapidly-expanding Global 100 firm.
Law firms are strengthening their European practices, with Bird & Bird, PwC and Farrer & Co all hiring in London, Kirkland & Ellis in Germany, while a Clifford Chance (CC) partner was appointed to a high-profile panel role.
James Bole, promoted to CC’s M&A partner two months ago, has been named as the new secretary of the Takeover Panel, on a two-year secondment from September. Bole is CC’s first Takeover Panel appointment for a decade. He will replace Addleshaw Goddard partner Simon Woodin the role.
Bird & Bird appointed banking and finance partner Samrad Nazer in its London office, as part of its growth plan in acquisition and leveraged finance work.
Nazer has now joined from US firm Locke Lord, where he was head of banking and finance, with particular expertise in energy & utilities, fintech and sport. He advised on both lender and borrower side, within corporate finance, corporate lending and structured finance.
Nazer said he relished the opportunity to ‘work for a more developed, international platform and have a more focused strategic direction within the banking and finance practice’, adding that he will work to develop both Bird & Bird’s banking and finance practice in London and the firm’s offices across the globe.
Tom Ince has joined PwC’s employment law team as a partner from Reed Smith, where he was deputy practice group leader of the global employment law practice and a partner.
At PwC he will lead on outsourcing-related employment matters. He said: ‘Businesses are facing unprecedented changes in their workforce, whether that is due to increased regulation across the globe or the changing nature of the workplace.’ Tom Kerr Williams joined the employment team from DLA Piper in April 2016.
Private client firm Farrer & Co has hired Rachel Mainwaring-Taylor as a London partner from Hunters Solicitors. She specialises in personal tax and succession planning, both in the UK and internationally, and advises clients on trust structures, wills and cross-border estates. She is experienced in working with international families.
Meanwhile in Germany, Kirkland has hired Attila Oldag as Munich corporate partner from Gütt Olk Feldhaus. A partner at the firm since 2013, Oldag advises German and international companies and financial investors on private equity and M&A transactions.
The latest addition to the firm’s German corporate practice, after private equity specialist Volkmar Bruckner joined from Weil, Gotshal & Manges in May, three in 2016 and Joerg Kirchner from Latham & Watkins in 2015.
