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The mother of invention – why necessity and high prices will push private equity to new heights

Travers Smith’s Paul Dolman argues a reviving buyout industry will increasingly drive European deal markets

2014 was a year that saw the number and value of private equity (PE)-backed exits reach unparalleled highs globally. More benevolent economic and market conditions, including an increase in global M&A activity, created renewed confidence in the industry. With a mountain of dry powder to deploy – that’s unused equity in the industry slang – and more debt funding available than has been the case for years (and on more favourable terms), PE firms have been very busy looking for new investment opportunities. This has resulted in fierce competition for any high-quality assets that come to market. Coupled with the continued high valuations of comparable companies on the public markets and near-zero interest rates, this has inflated valuations and resulted in the purchase-price multiples for leveraged buyouts in Europe reaching an average of ten times EBITDA – highs not seen since the peak of the last cycle.

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Policing the City – where do in-house lawyers fit in?

Stephenson Harwood’s Tony Woodcock argues that financial regulation has failed to clarify the status of in-house counsel

Though one is always on dangerous ground in suggesting that anything was clear or uncomplicated in the Financial Services Authority’s Handbook and its successors, one could comfortably say that in-house lawyers were not regarded as significant influence function-holders requiring approval under the Financial Services and Markets Act (FSMA) 2000. They were not specifically named as holders of a ‘controlled function’ and would not be regarded as holders of a ‘significant management function’, the characterisation of which required a person to be a ‘senior manager’ of a significant business unit reporting directly to the governing body or the chief executive or the equivalent. The in-house lawyer’s role was not managerial and supervisory, but advisory and privileged.

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Coming off the naughty step

Baker & McKenzie’s Jonathan Walsh charts the quiet rehabilitation of asset-backed lending

Securitisation has taken a battering in recent years. A complex financing technique, little understood by the public, it was an easy scapegoat as a principal cause of the global financial crisis. For a while after the crisis it seemed as if various supervisory authorities would regulate it to the point of extinction.

Thankfully, that did not happen. But over the past six or seven years (depending on when you think the financial crisis actually hit) rules aimed at stifling the securitisation market have been pumped out on both sides of the Atlantic. We have had rules on bank capital, rating agencies, investors and more. The additional regulations are complex, in some cases contradictory, and affect all aspects of securitisation transactions and the parties involved in such transactions.

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‘A curious atmosphere of consensus’ – the dangers of groupthink

HSF fraud veteran Robert Hunter on how smart teams can make bad decisions

Many admire John Kennedy and his advisers’ deft handling of the Cuban missile crisis. It is generally thought to result from some of the best-judged decisions of the era. Yet a year earlier, much the same group of people decided to support the Bay of Pigs invasion (a crackpot scheme for the invasion of Cuba in which the US pitted 1,600 men against 200,000), conversely thought of as one of the most idiotic.

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Life During Law – David Ereira

I’m always in the present and think of the now.

You make your own luck. You have to put yourself in harm’s way. You have to be standing by the street when the ambulance goes by or you’re not going to be able to chase it. There’s a degree of intelligent positioning.

I come from a generation who have been very lucky. The role of law firms and lawyers went through a dramatic transformation in the 1980s with the Big Bang, and my generation rode that wave.

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The court of King Content – the lawyers making their mark in the high end TV

The internet and the emergence of a global market for high-end series has ushered in a golden age of TV production and seismic changes to the media environment. Legal Business reports on the lawyers working in one of the fastest-changing industries.

These days, the small screen is big business. Popular television programmes, like period drama Downton Abbey, cost an average of around £1m to produce per hour of screen time, whereas fantasy epic Game of Thrones has reached new financial heights, with a budget of up to $8m (£5.3m) per episode.

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Fault lines – tax, Brexit and what the general election means to City lawyers

After a relatively stable coalition government, Britain goes to the polls amid huge uncertainty, with the main parties far apart on key policies. Legal Business assesses the manifestos to identify the issues impacting the City and the profession.

‘You can follow all the polls but the money is a much more reliable guide,’ observes one Magic Circle partner. ‘At Ladbrokes you can get the odds on who’s going to be prime minister after the election, but this is not on 8 May but August. They think it will take that long to sort it all out.’

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Go your own way – legal boutiques and the seductive appeal of being your own boss

City lawyers are risking mega salaries to strike out on their own. Legal Business explores what is driving the current wave of boutiques and asks how these start-ups have fared.

Six-figure salaries, plush City offices, institutional clients throwing work your way – what’s not to love? Quite a lot, it seems. The post-Lehman environment has seen uncharacteristic enthusiasm from City lawyers to strike out on their own and create their own boutiques, recapturing the independence lost within increasingly regimented global outfits.

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Hunting Dragons – Anti-corruption in Asia

Once a byword for bribery, the Asia region has toughened anti-corruption measures in recent years, but enforcement remains hard to predict. We team up with Simmons & Simmons to assess the client response.

Any multinational worthy of the label has to be in east and south-east Asia. The scale of the market, its manufacturing base, and its growing consumer population make it impossible to ignore.

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The Last Word: Election fever

As the UK heads to the polls for the general election, senior legal figures provide their views on the current mood in the City.

TAXING ISSUE

‘There is an undercurrent of disenchantment. People have gone through a period when living standards have been static or have even fallen in real terms. They are upset and worried about the future. They are worried about the future of the economy, the health service and what’s going to happen with education, and why their children can’t afford a house. But saying we will introduce a mansion tax is not the answer.’

David Ereira, finance partner, Linklaters

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Getting on the board: Lucas takes role on Kirkland’s executive committee and top spot in its City office

Following some speculation as to who would become Kirkland & Ellis‘ de facto head in London, finance partner Stephen Lucas has taken up the role and has been appointed to the firm’s executive committee, just one year after joining the firm.

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Right to vote: Eversheds reforms fixed-share partner scheme to include voting and greater profit share

In the wake of HMRC’s tax changes which have seen fixed-share partners (FSP) contribute capital at a slew of LB100 firms and many reassess their partnership model, Eversheds has reformed its fixed share scheme by allowing some FSPs to vote in firm elections and take home an increased profit share.

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News in brief – May 2015

WHITTAKER STEPS DOWN AS LLOYDS GC

Group general counsel (GC) Andrew Whittaker is stepping down from his role at Lloyds Banking Group with deputy GC Kate Cheetham set to replace him. Whittaker joined the bank in May 2013 after having served as the legal head of the Financial Services Authority. The bank also saw the departure of disputes chief Philippa Simmons last month and began a redundancy consultation looking at cutting up to 25 mid-level positions.

 

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The Middle East: After the gold rush

Barchart buildings

Latham & Watkins doesn’t make strategic missteps. Or at least that appeared to be the case until March, when the firm announced that it will close both its Abu Dhabi and Qatar offices later this year, relocating staff to its Dubai operation. Bill Voge, chair and managing partner of the firm that has been by most yardsticks the standout success story of the last 20 years, said the firm had been wrong in assuming there were four distinct hubs that the firm needed to service clients in the Middle East – Abu Dhabi, Dubai, Qatar and Saudi Arabia – and so after seven years in the region, the firm was consolidating its Middle East presence into Dubai and Riyadh.

For international firms, finding the appropriate business model and strategy for the Middle East has been a puzzle. The region was never more alluring than at the height of the pre-financial crisis period of 2007 and 2008. Intoxicated by crude oil prices at nearly $150 a barrel in the summer of 2008, the Middle East could hardly have felt more prosperous. As ostentation gripped the region, Dubai powered ahead with ambitious projects such as the man-made archipelago Palm Jumeirah and the Burj Khalifa, the world’s tallest building. Naturally, the legal profession sought to capitalise.

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