A&O trumpets capture of Norton Rose's acquisition finance team
28 January 2002
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13 October 2003
Many people in leveraged finance will have known that the Norton Rose acquisition finance team was on the market. However, in the same vein, most people were shocked last Monday when The Lawyer website revealed that the team is joining Allen & Overy (A&O).
It is not hard to see what is in it for the team - more money, more prestige, a bigger client list and a superior European network. But the question remains: what is in it for A&O?
The leveraged finance arena is already clearly defined. Clifford Chance and A&O are unchallenged as market leaders, while Linklaters, Ashurst Morris Crisp, Norton Rose and Shearman & Sterling all vie for third place.
The argument put forward by many is that the looting of the four Norton Rose partners - Andrew Bamber, Tim Polglase, Clive Wells and Robin Harvey - only serves to knock out a competitor and thereby reduce the competition for the runner-up.
A&O, while admitting that the move is on one level defensive, nevertheless claims that it will consolidate key relationships with the Royal Bank of Scotland (RBS), JP Morgan Chase and Fuji Bank.
Undoubtedly, it will increase its market share with these three clients, but it remains to be seen whether it will punch over and above the weight of the two combined practices. Competitors suggest that it won't.
Head of leveraged finance at A&O Tony Keal said the move is part of a carefully considered strategic plan. "We've set ourselves some very challenging goals," he said. "Despite the short-term hiccups, we think leveraged finance is going to take off substantially in Europe and in Japan."
Apparently, A&O considers that it is under-resourced. According to Keal, the deals that currently bypass A&O could, with the right resources, be redirected.
However, others argue that A&O is being optimistic and that conflicts will stand in the way - but it depends on who you talk to as to the size of the problem with conflicts. Ashursts and Shearman are more likely to play up the issues, while Clifford Chance and A&O play them down.
Partners at firms in the latter group say that conflicts can be avoided through 'treeing', in which different teams deal with mandates for separate investors and separate financial institutions. All made possible - whether or not they are strictly adhered to - by Chinese walls.
However, a partner in a firm in the former group said that it is impossible to maintain key relationships with key clients if you cannot guarantee them exclusive and consistent attention from a core team.
The Norton Rose team is reputed to be very good at client care and clients tend to have good relationships with several of the team members.
Keal said this made it pointless to try and split the team up. "They've managed to act very much as a team, and therefore taking only part of the team wouldn't deliver [the desired effect]."
A&O has strong relationships on the leveraged side with Barclays Capital, Goldman Sachs, Lehman Brothers, Fuji Bank, Citigroup, BNP Paribas and Deutsche Bank, whereas its ties with RBS and JP Morgan are weaker.
Out of the four Norton Rose partners, Polglase has the strongest client connections. At JP Morgan he is close to the managing directors of syndicated finance, Philippe Goffin and John Empson. He is also rated by David Wood, who moved from JP Morgan to Deutsche Bank. But despite the connection, Norton Rose has been omitted from Deutsche Bank's leveraged finance panel, reportedly over doubts concerning its European network. The move to A&O will allow the relationship to be rekindled.
Polglase is also the firm's connection with Fuji Bank. A&O partner Euan Gorrie currently does a huge amount of work for the bank, and once Polglase joins, A&O will have a virtual monopoly.
The firm's connection with RBS is considered to be more of an institutional relationship stemming from its connection with the Bank of Scotland. In 1992, RBS's current head of structured finance Leith Robertson joined RBS from the Bank of Scotland, bringing Norton Rose with him in the process.
Although the team will take much of its work with it, there is bound to be some fallout. Some market sources predict that Ashursts is likely to benefit from the moves given Mark Vickers' strong relationship with Robertson at RBS.
One magic circle partner said: "It's unlikely that RBS will want to give all the work that currently goes to Norton Rose to A&O on top of the share that it already gets."
However, the move must force Clifford Chance to sit up and take note, despite what its partners say.
Clifford Chance leveraged finance partner James Johnson claims that he does not expect to see his firm suffer at all. "We get 50 per cent of the work from RBS and JP Morgan and we don't expect to see our market share decline," he said.
Another partner at a magic circle firm said: "We would have been far more worried had the team gone to a US firm trying to break into the market."
Clifford Chance has 10 partners working solely on leveraged deals with a further 10 doing some leverage work; following the move, A&O will have 14.
Last year, the three biggest deals were Messer Griesheim, Cognis Group and Le Meridien. Clifford Chance advised the banks on the first two and the purchaser on the third, while A&O advised the banks on Le Meridien.
The departures leave Norton Rose with just two acquisition finance partners. Tom Speechley, who joined the firm from Jones Day Reavis & Pogue in New York last May, and Lucy Woley-Dod. But despite working for the Norton Rose acquisition group between 1992 and 1998, Speechley, whose clients include RBS, NIB Capital and Bank of America, was never integrated into the team.
JP Morgan's relationship partner is David Parish while RBS is looked after by securitisation partner Jonathan Walsh. However, the firm will have to work hard to rebuild the contacts in the structured finance department, although Speechley advised JP Morgan on the Pernod Ricard acquisition of Seagrams' spirits and wines business while he was at Jones Day.
Last year the banking and finance department accounted for roughly 35 per cent of the overall turnover and there are now 15 partners in asset finance, 10 in projects and six in the international securities group.
Despite Norton Rose managing partner Roger Birkby's assertion that partners leave firms every day and that a fluid market means the practice will be easy to rebuild, the firm must surely have to rethink its strategy. In 1997 it announced its intention to become one of the five largest global firms by 2005. Not only is this nigh on impossible, but the firm now needs to pull off a merger more than ever.
Despite its acquisition of the Cologne office of Gaedertz last year, the firm is far from where it would like to be, and Birkby concedes that its European network is in part responsible for the departures.
"I think they left because A&O has a bigger European footprint," he said. "But we're getting there. We have very good practices in Germany and Paris, and the Neth-erlands and Spain are likely to follow."
It is not yet clear how many associates will be following the team to A&O, but it is unlikely to be as many as 12, which will leave the firm short. Its current partner-to-associate leverage is 1:3 and so in order to maintain the group's profitability it will need to find a number of good associates. "But where from?" asked one partner.
Clearly, the news has hit Norton Rose hard and the firm needs time to decide how it will react. But what the market is far less clear about is whether this really is a coup for A&O.
A&O may sound chuffed, but not a single one of its competitors is willing to concede that, even as a defensive move, it makes much sense.
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