David Stevenson assesses Shearman’s hopes of regaining its potency
‘The work that’s been done over the last few years is bearing fruit. Like a tree blossoming,’ observes Laurence Levy, head of European M&A at Shearman & Sterling. Long-time Shearman watchers have, of course, become familiar with variations on the revival rhetoric that Shearman has used several times before. But has this once celebrated Wall Street name really rediscovered its winning ways?
Firm-wide, the jury is at best still out, but focusing on its London operation it is easier to be upbeat. The firm’s City arm broke the $100m turnover mark in 2010 and has generally been growing at a respectable clip since then, up from $112.6m in 2012 to $134.8m for the 2013 financial year.
And, crucially, Shearman has posted its best performance for years in 2013, with global revenues up 9.1% to $820.5m.
This revival of growth is in contrast to Shearman’s previous firm-wide performance, which has inarguably been poor in recent years, with overall revenues dipping by 18% to $752m over a five-year run to 2012. This reflects a practice in its home New York market that was regarded to have neither the transactional muscle the firm enjoyed during its late 1990s peak, nor the contentious heft of many peers.
It was a comedown for a firm that not so long ago boasted a near top-tier presence on Wall Street, married with the then best UK and Germany practices built by a US adviser. Aside from failing to build a proper disputes hedge, views remained mixed over the mid-2000s leadership of senior partner Rohan Weerasinghe, who quit the firm two years ago to become Citigroup general counsel.
Supporters believe Weerasinghe rightly focused on profitability and getting the firm in leaner shape, but critics of this period see Shearman drawing back from the boldness of its 1990s vintage to cede the global vision thing to Latham & Watkins.
As such, much has been made of the 2012 election of Creighton Condon as Weerasinghe’s replacement – especially in London given Condon’s previous job as European managing partner – marking a return of the thrusting Shearman spirit of old.
In addition, the firm’s 30-partner City arm has looked more proactive after an unsettled period in which Shearman could no longer count on its early-mover stance giving it the pick of the senior talent from City leaders decamping to US challengers.
At times, Shearman UK looked too diversified – with a collection of debt securities, IPO, project finance and public M&A practitioners – to have a clear niche pitch, but also lacking the range to entirely sell the full-service model.
While it is not clear that this positioning has been resolved, there have been some notable mandates in recent years, including The Co-operative deal last year, in which Shearman advised major bondholders of The Co-operative Bank, hedge funds Aurelius Capital Management and Silver Point Capital, on their attempt to gain control of the bank.
‘To cover the London market with 30 partners and get that level of deals is remarkable. I’m not sure anyone has done it before us,’ proclaims head of the global financial institutions advisory and financial regulatory group, Barney Reynolds.
Nice work, but creditor bail-ins are hardly the bread and butter of legal business and the firm readily admits it is not in a position to play in the domestic M&A market. ‘It’s tough for us. We’ve been building a business here. To be credible it’s more a case of familiarity. We don’t have the same track record in the UK,’ says European and African managing partner Nick Buckworth.
Other standout work for Shearman includes advising longstanding client IntercontinentalExchange on the European aspects of the $11bn acquisition of NYSE Euronext.
‘To cover London with 30 partners and get that level of deals is remarkable. I’m not sure anyone has done it before.’
Its punchy projects team has also been active, notably for regular client Dow Chemical Company, in a $10.5bn joint venture in Saudi Arabia, as part of the Sadara project. The firm also won roles on some of the most substantive cross-border deals of 2013, including advising Liberty Global on its $23.3bn acquisition of Virgin Media and GE on its $4.3bn acquisition of the Italian aviation business Avio.
Shearman is also well known for its debt capital markets work and leveraged finance, and has a solid showing in the buoyant high-yield sector. Still, given the pedigree of operators like finance partner Clifford Atkins and acquisition finance partner Anthony Ward, arguably the firm should be more prominent in the European leveraged market.
One investment the firm is hoping will bolster its position here is last year’s recruitment of two partners from Weil, Gotshal & Manges: private equity partner Mark Soundy and tax specialist Sarah Priestley. Weil corporate associate Simon Burrows also joined as a partner. How this plays out will be interesting for Shearman. Having failed to gel at Weil, views remain mixed on what Soundy brings to the table, though he retains admirers in the buyout scene.
Conversely, the firm lost highly regarded head of global project development Tim Pick to Freshfields Bruckhaus Deringer last April in a departure some attributed to office politics.
The restructuring last year of Shearman’s once-vaunted German practice – resulting in the closure of offices in Düsseldorf and Munich – attracted some negative headlines, but partners are generally upbeat about the shake-up, in part because Shearman’s German practice had been losing millions of pounds annually.
Will all this be enough to make Shearman the pace-setter it was a decade ago in Europe? In truth, the bar has raised so much since and the fading of Shearman’s lustre on Wall Street raises real issues in the City. As such, the robust financial performance in 2013 after a lost decade is of huge importance in terms of galvanising the partnership. Shearman also retains a respectable European network, some quality practitioners and has something to prove. It will be these seeds that will help the firm ultimately bloom once more, not the defiant talk.