Reports of the death of CC’s sponsor practice prove exaggerated but surviving isn’t thriving

Marco Cillario finds much more substance to CC’s PE business than the usual critique but stopping managed relative decline will only get harder

‘Look at the team they had in the mid-2000s: strong personalities, industry leaders, primary advisers to any significant private equity house. There has never been a team that strong in Europe. They failed to bring through any meaningful succession.’

If harsh in its tone, this quote from a former partner sums up the received wisdom regarding Clifford Chance (CC)’s City private equity practice – and no, that is not just speaking to former partners now at US firms and the usual trash-talkers.

The practice, which in its Clifford Turner guise was on the ground floor of the UK private equity scene, was a hotbed of talent, and once viewed as head and shoulders above peers.

Matthew Layton, Adam Signy, David Walker and David Pearson, supported by Jason Glover’s funds practice and Oliver Felsenstein in Germany – a team that in many ways wrote the book on the City’s private equity market – have given way to current names with less pulling power. Layton went into management, Pearson stepped back his commitments (and has now retired from the partnership) and the others left to strengthen the City ranks of US rivals.

For context, maintaining the kind of utter domination forged at a time when most high-end rivals thought buyouts were a grubby distraction was never going to be possible in a market with such fierce competition from US entrants, not to mention Freshfields Bruckhaus Deringer’s 20-year assault on the sector.

‘Private equity is in the DNA of the firm and that makes a huge difference.’
Spencer Baylin, Clifford Chance

Yet the unpalatable truth for CC is that, when asking for the top three in European private equity these days, the most common trio named in the industry will be Latham & Watkins, Kirkland & Ellis and Freshfields.

Is that fair? The short answer is no. The longer answer is that the narrative, while carrying some truth, has been oversold in a field long prone to gossipy exaggeration.

‘We understand why the story is always about what is happening at CC,’ says partner Spencer Baylin. ‘When you’re at the top of a market for so long, people are always looking for things to go in one direction.’

Baylin himself is easily the most widely-tipped in CC’s team, but the bench remains broad. ‘The most talented’, ‘hugely effective’, ‘works like a demon’, ‘clients love him’ are some of the comments from peers. While his work for Actis is often mentioned, Baylin has also acted for key clients The Blackstone Group, Permira and Partners Group.

CC also fields in Christopher Sullivan one of the most promising young partners in the buyout sector. Despite only being made up two years ago, Sullivan is already lauded for his work with clients like Cinven. And then there is Jonny Myers, the firm’s practice head who splits peer opinion like no other figure in private equity, which given the big characters that prowl and preen in leveraged-buyout land, is saying something.

Picking up the Permira relationship from Layton, some point to a clash of style with the key sponsor client. Supporters point out that his career went through a renaissance after a few wobbles as a junior partner after taking over the Cinven relationship in 2013. ‘He absolutely aced it with Cinven,’ recalls one former partner. ‘Jonny has had a second wind in his career.’

Another balanced assessment of Myers comes in: ‘Jonny is not a technical lawyer but has a great feel for issues, a great focus on what’s important. He speaks with PE clients very briefly, identifies the key issues and does not bore them with a lot of crap.’

Other advisers have made inroads with marquee clients Permira and (especially) CVC, though the evolution of sponsors over the last decade means the days when one adviser could lock down all a top-tier house’s work are long gone.

And against that, Cinven has been a key win in recent years: largely thanks to Myers, CC has replaced Ashurst as go-to counsel along with Freshfields.

The team also boasts Amy Mahon, the standout name in the expanding ranks of female deal lawyers making their name in private equity. Mahon built her reputation acting for the likes of top-flight sponsors Apax Partners, KKR Infrastructure and EQT. Veteran Simon Tinkler still retains a good reputation, particularly for work with Clayton, Dubilier & Rice, even in a sector that is resoundingly a young partner’s game.

CC also points to strategic client in-roads, including Blackstone, which the firm recently advised in the acquisition of Clarion Events and The Office Group, and Partners Group, for which it acted on the acquisition of Civica. The firm has also recently worked on China Investment Corporation’s €12.25bn acquisition of logistics outfit Logicor from Blackstone – the second-largest European real estate private equity transaction on record.

One of the messages in defence of CC’s position is that the strength of the practice is in the breadth of its client base, the depth of its specialisation and the degree of collaboration with other practices. It also benefits from consistent coverage across Europe, especially Germany.

Says Baylin: ‘Private equity is in the DNA of the firm and that makes a huge difference. Our focus on the private equity market for the last several decades means that it is not just the PE partners that understand the clients but also the team of experts needed to support those clients, such as finance, antitrust, regulatory, employment, tax – both here and around the world.’

Partners also stress the sector specialisation of many members of its M&A team, which they see as one of the reasons why some of its talent goes unnoticed by mainstream private equity hands. Examples include younger partners such as Graham Phillips (who focuses on the energy, oil and gas sectors) and Nicholas Hughes (energy and infrastructure with a particular focus on the power industry), as well as veterans such as Nigel Wellings (emerging markets) and Brendan Moylan (infrastructure). Funds head Nigel Hatfield is also a very productive hand who does not get enough credit.

How much revenue does the private equity practice generate now? The firm is cagey beyond stating that revenues were on course to grow more than 12% annually for 2017/18 and that the team has expanded its turnover by nearly a third over the last five years. External estimates are that CC generates around £250m globally from private equity clients across M&A, finance and funds – a very considerable figure on good margins, though dwarfed on a global basis by what Kirkland now takes out of sponsors.

For context, in its pre-Lehman peak, CC was generating over £40m in its core UK practice, a similar amount again handling debt work for sponsors and debt providers on buyouts and over £20m a year on funds. That meant a UK team of less than 25 partners covering corporate, debt and funds was generating comfortably over £100m a year. Work for portfolio companies obviously generates substantial additional amounts.

Yet if it is clear that considerable relative standing has been lost, a neutral view must be that CC is still in the major leagues of Europe’s private equity scene and still ahead of Latham from a corporate perspective (finance being a different story).

So much for the prologue. Where is CC’s sponsor story going? CC has grown increasingly fond in recent years of talking up the team, brand and institution over individual partners, yet on most assessments, the firm’s ability to retain and develop outstanding individuals will define its prospects.

Baylin and Myers are believed to have received – and turned down – at least one formal offer from another firm, but the pair are at least currently convincing in their loyalty pledges. Baylin observes: ‘It takes lifetimes to build what CC has in terms of its offering to clients and we continue to build each day.’ Myers notes: ‘I do get calls, but I am definitely not looking to move. I have absolutely no reason to be looking to move.’ Sullivan is similarly on point: ‘We look out to the world and think there is no better firm on the planet to do private equity.’

The firm has adjusted its lockstep – firm-watchers know endlessly fretting about its remuneration model is a 20-year tradition at CC – and Myers and Baylin are widely cited as two of the handful of City partners on the new highest range of 150 points, bringing in earnings of well over £2m.

But, of course, we are now reaching the age of the $10m lateral in private equity. Explosive growth in the private equity and related sponsor market means CC can keep steadily leaking moderate amounts of market share – and the odd partner – and still outperform the rest of the firm. But this sector is uniquely vulnerable to disastrous walkouts. At the risk of ending on a mixed metaphor, this leaves two core conclusions: to excel rather than endure, CC will need stars alongside that polished team. And in this regard, CC must remember that in private equity the best form of defence is usually attack. There is no such thing as orderly withdrawal.

marco.cillario@legalease.co.uk