Tom Moore looks at Freshfields’ recent expansion in Manhattan
Freshfields Bruckhaus Deringer has made growing its US practice its number one priority and the firm has even stepped on a few Wall Street toes in 2014 with its aggressive hiring strategy. In the space of a month, six new partners have been drafted in, including Shearman & Sterling M&A veteran Peter Lyons and former Wachtell, Lipton, Rosen & Katz dealmaker Mitchell Presser to boost an underweight transactional group. Despite success in US disputes and investigations work, Freshfields has lacked a real M&A engine in New York but has pinned its hopes on the duo putting a change to that.
Having opened in New York in 1977, progress has been slow. However, a raft of recent hires signals a greater hunger to secure its US breakthrough. But why now? ‘We try to take each step at the right time,’ global managing partner David Aitman told Legal Business. ‘We built a finance practice, then a tax practice and then moved into antitrust and white-collar crime.
‘The client needs to know you can provide that service in all the key parts of the world and the US is absolutely critical for that, so ramping up a practice that can do that internationally better than any competitor is really key to us.’
Aitman argues the firm has made ground on rivals born and bred in New York but its US deal volume – and more importantly the value of those deals – lags far behind the likes of Davis Polk & Wardwell and Kirkland & Ellis. While Freshfields’ US corporate team has run more mandates in the first nine months of 2014 than it did in the corresponding period in 2013, Dealogic’s most recent US attorney league table ranks the firm in 24th position, with 34 mandates worth a combined $52.5bn, almost half the value run by Herbert Smith Freehills, which entered the charts in 15th place, while Allen & Overy was in 21st place. This relative lack of growth comes despite a booming US M&A market, with more than $400bn worth of additional deals having been announced so far this year compared to the same period in 2013, taking deal activity up to $1.29trn.
Freshfields hopes Lyons, who led Shearman’s M&A practice for eight years until 2008, and Presser will pull new business into 601 Lexington Avenue and it’s no coincidence their arrival coincides with the hire of James Douglas from Skadden, Arps, Slate, Meagher & Flom to head the firm’s US leveraged finance practice and a triple capital markets hire from Fried, Frank, Harris, Shriver & Jacobson, comprising Valerie Ford Jacob, who has been appointed co-head of the group, Paul Tropp, who joins as New York head of capital markets, and partner Michael Levitt.
‘I’m confident it will be successful because it plays to our core strategy,’ said global head of corporate Edward Braham. ‘This hasn’t been brewed up in a smoke-filled room. This is long-term thinking and we’re doing it with really good people. Sarbanes-Oxley was great for us as no-one wanted to be in the States but time is a great healer and what really matters is where you can raise money. That means that companies are looking at the US, Hong Kong and London for their IPOs.’
‘There is a relatively narrow gap between us and the New York firms and we think we can close that gap.’
David Aitman, Freshfields
The Magic Circle’s adherence to a lockstep remuneration system and difficulties in modifying it have hindered its ability to secure senior talent in the US. Legal Business understands that Freshfields has broken its lockstep to top up salaries in the US from a discrete profit pool that has also been employed to hire partners in Asia.
Freshfields refused to comment on whether it has stayed within its lockstep to attract its latest hires but Aitman commented: ‘We have a lockstep model that is broad enough to accomplish our goals. We are competitive but money has not been the driver for people. The discussions have been around what we can offer as a platform and how it is transformational. There is a relatively narrow gap between us and the New York firms and we think we can close that gap and we’ve convinced the people we’ve hired that we can do it.’
This latest hiring spree takes Freshfields up to 25 New York partners, making it the firm’s third-largest single office after London and Frankfurt, albeit some way behind the size of Clifford Chance, with 57 New York partners, and just behind A&O’s 35-partner office. However, progress in Manhattan has typically been hard to sustain for Magic Circle firms. Despite this recent spate of hires, the firm’s US operation only has one more partner in the US than in 2011, when it had 32 partners. While its M&A opportunities look brighter, the firm’s arbitration practice, arguably its strongest group in New York, shed another high-profile partner when Alexander Yanos left for Hughes Hubbard & Reed last month. In New York, the next step for Freshfields is to broaden its lower ranks to add the volume needed to run the type of mandates it collects in London, while producing a loyal batch of future partners.
Aitman admits that many clients have doubts over selecting the firm on New York-led mandates, but hopes to change that. ‘We can increasingly convince clients that know us a bit less well internationally or usually opt for a New York firm that has a bigger team to select us,’ he says. ‘We have clients that have looked at using us in New York for years and some have seen [selecting us] from different perspectives. These hires will make a big difference to that group, who were reasonably convinced [about our New York office], but needed a nudge further forward. These hires will really give them that nudge.’
tom.moore@legalease.co.uk