Jaishree Kalia assesses A&O’s latest attempt to break into the buyout game.
There was never any obvious reason for Allen & Overy (A&O) to largely ignore private equity. While a circular debate simmered in the City about the problems of combining deal finance and corporate, its arch rival Clifford Chance (CC) had long made hay in both leverage finance and private equity. A finance-centric law firm should on paper be in tune with private equity houses, while the lack of a public M&A heritage to rival a Linklaters would suggest the buyout barons would have made good clients to build its corporate brand.
Yet the stark impression for years was that A&O didn’t much care, being content to stick to its bankers on one hand and its expanding roster of corporate clients on the other. The 2006 recruitment of Derek Baird from Lovells ushered in a well-regarded performer, but the level of competition in an increasingly combative private equity scene means it takes a lot more than a couple of decent hands to perform at this level. The 2012 departure of Baird to leveraged buyout (LBO)-royalty Simpson Thacher & Bartlett certainly sent a clear signal.
So the obvious question now, with A&O last November recruiting Stephen Lloyd, Ashurst’s top private equity man, is: has the Magic Circle firm really changed its tune?
In some regards, the timing is right. While A&O is a good distance behind CC, Freshfields Bruckhaus Deringer and even a depleted Linklaters, not to mention the leading US firms and an on-form Travers Smith, private equity is a market in flux.
Since Weil, Gotshal & Manges’ 2006 hire of a high-billing team from Lovells, US firms have been piling into a market that fits their individualistic cultures and need for portable business, as such assaulting City players to the point that only Freshfields and Travers have avoided major damage.
Likewise, the relative loss of banks’ dominance in Europe’s credit markets over the last three years, in favour of an array of private equity houses, specialist funds and alternative credit providers, means there is less money in being singularly faithful to the bulge bracket. And anyway, these days diversified houses like The Carlyle Group and Blackstone increasingly resemble traditional banks.
If A&O is really serious, Lloyd looks a credible candidate to relaunch the practice. As one of Ashurst’s top billers with client links such as Apax Partners – Lloyd brings a serious reputation – one reason why A&O senior partner David Morley is believed to have helped reel him in.
While Lloyd remains under restrictive covenants, Legal Business understands that houses such as Blackstone, Bridgepoint and CVC Capital Partners have recently shown interest in the Magic Circle firm.
The recruitment in March of junior Ashurst partner Karan Dinamani likewise brings a promising young talent, while A&O partner Gordon Milne, who has acted for clients including Apax and Exponent, has already made an impression. Milne, who was promoted in 2009, last year advised Canadian sponsor OMERS Private Equity when it acquired Vue Entertainment for £935m, for which Lloyd, while at Ashurst, represented co-acquirer Alberta Investment Management Corporation.
That’s a start, but realistically, it will take more. A&O has ranked poorly in private equity tables for years and a request for highlight matters ushers a thin list. The suspicion that A&O will have to overcome is that, culturally, not enough opinion-forming partners in corporate and banking have bought into the buyout craze. It will also certainly mean more investment, requiring another couple of partners in London and sizeable spattering of senior hands in its international network that can engage with sponsors.
‘The problem with A&O is its corporate practice will always be in constant battle with finance. Out of all the English firms, Freshfields is the only one that does private equity well,’ argues one partner at a US law firm.
Senior partner Chris Hale at Travers Smith comments: ‘Lloyd is a very good lawyer and will help the firm recover the position it had when Derek Baird left. The private equity legal market is in flux, and UK firms have been set back, but I would expect the likes of CC, Linklaters and Ashurst to remain strong players.’
‘There is space for more than one model in the private equity legal market – the US specialist corporate and finance shop is one, and the European firm with a global finance and corporate network is another,’ responds Lloyd, who says that the practice already has a respectable pipeline of high-end and mid-market matters. ‘But private equity is very much a relationship driven business and it is the firms that work seamlessly across corporate, debt and high-yield to capitalise on their contacts that will succeed.’
Perhaps the most interesting firm-wide issue for A&O is the extent to which the firm is willing and able to evolve from a classic bank-driven practice towards a more flexible US-style leveraged finance shop. As Legal Business noted last month, the shift towards bond financing and US credit markets to back European takeovers is tilting the field in favour of US advisers and away from City players.
Ultimately A&O, having made arguably the most successful move into US financing sectors, like high-yield, of its City peers, has the network and bank/bond credibility to mount a potent pitch as a buyout counsel… if it can muster the institutional will.
Lloyd argues the desire will be there. ‘There is considerable excitement here about the opportunities. The dislocation in the private equity legal market at the moment can only add to the possibilities.’
jaishree.kalia@legalease.co.uk