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.
The $10m-a-year transfer – one of the most expensive ever in the legal market – was a potent statement of ambition for the Chicago-bred giant at a time when US invaders are rapidly advancing in the Square Mile.
The timing was also striking as the private equity guru’s resignation on 15 December came just weeks after Freshfields made sweeping changes to its partnership structure designed to retain top performers. For many, it appeared to be a smack in the face for the Magic Circle firm.
For Freshfields, nevertheless, the move was not out of the blue. Kirkland had previously courted Higgins and the buyout veteran was known to be disenchanted with foot-dragging over moves to overhaul the City giant’s partnership. ‘It was simply too little too late,’ says one ex-Freshfields partner of the reforms, which some argue would have worked better had they been implemented in 2015 when first floated.
Higgins was also known to be interested in taking a substantive leadership role at Freshfields, which seemed an increasingly remote prospect. Tensions had also built up between Higgins and the firm’s banking team. Weil, Gotshal & Manges and Latham & Watkins were known to have been interested in Higgins – indeed, the smart money was on Latham, though the firm denies there were substantive talks.
Transferring instead to Kirkland holds the prospect of coming in as the clear lead name on corporate with a mandate to build long term and a space alongside City finance heavyweight Stephen Lucas on the US firm’s executive body.
Despite the huge inroads Kirkland has made in Europe’s buzzing leveraged finance scene, the bulk of its stars like Neel Sachdev and Michael Steele cover sponsor finance. While Linklaters corporate partner Matthew Elliott has proved a runaway success in the ultra-hot real estate sector, the firm has lacked prestige names on more mainstream M&A despite a string of private equity hires over the years.
The ten-million-dollar question is whether Higgins will be able to build a practice comparable to Freshfields’ much-vaunted European buyout team. Aside from a deep bench, Freshfields has the advantage of muscular coverage in Germany and superb region-wide back-up on antitrust, finreg and tax, which Kirkland has no realistic prospect of replicating.
Kirkland for its part brings huge advantages as one of the most upwardly-mobile US firms of the last 20 years and one with a rock-solid pedigree in the world’s dominant private equity money centre. It underlined its ambition last month when it recruited one of Cravath, Swaine & Moore’s leading M&A partners, Eric Schiele, the latest heavyweight Kirkland has hired in the supposedly-impenetrable New York market.
Higgins is certainly one of the leading buyout lawyers in the City and all eyes will be on whether he is able to bring over work from key clients such as Hellman & Friedman, The Blackstone Group, Cinven and CPP Investment Board.
Freshfields expects to limit the damage… providing its private equity team can hold on to further key partners over the next two years, most notably the hugely-admired Adrian Maguire and rising star Charles Hayes. The message coming from Freshfields is that the eight remaining private equity-focused partners in London will now have the chance to step out of the shadow of Higgins. Crucially, Maguire is viewed as a staunch loyalist with strong links to Freshfields.
Even if Freshfields repositions after what was a 2017 to forget, Kirkland will be justifiably bullish that the M&A name it has sought for years is to mastermind its corporate practice in Europe.
While rivals forecast tensions between Higgins and Lucas – with the clubbable and outgoing Freshfields veteran certainly having a different style to the intensely-driven Lucas – the claims that the leveraged finance lawyer would quickly flame out after being recruited from Weil Gotshal in 2014 proved wishful thinking.
Successful or not, it is clear that Higgins is being recruited as a long-term team builder for its European network, rather than short-term client portability… which makes it an all the more ominous development for City firms.