SJ Berwin’s Blake: private equity will come back, but we have to diversify
16 November 2009 | By Gavriel Hollander
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In today’s economic climate, survival may not solely be about playing to one’s strengths, says Gavriel Hollander
SJ Berwin’s corporate arm has been hit as hard as anyone’s by the effects of the financial crisis, but in recent months those apocryphal green shoots have begun to show.
The firm’s success through the first half of the decade was due largely to a concentration on fund formation and private equity. The good times culminated in SJ Berwin bagging The Lawyer’s Mid-market Corporate Team of the Year Award in 2007.
That has begun to look like the high-water mark following the departure of several leading funds partners that same year and the subsequent downturn in the equity markets.
Corporate turnover dropped by 34 per cent to £60.7m in 2008-09, making SJ Berwin the biggest faller among the top 20 firms. Equally worryingly, the firm’s corporate partner headcount dropped from 54 in January to 49 now, which includes the two partners who were made up in May.
Such haemorrhaging of personnel comes in the wake of 2007’s defection of three partners - Mark Mifsud, Richard Watkins and Justin Dolling - to form a private equity team at Kirkland & Ellis, taking several longstanding clients, such as Apax and Candover, with them.
But a series of major M&A deals in recent months shows that a new leaner and meaner team could be ready to regain its place among the big boys.
Earlier this year a team led by partner Michael Goldberg advised British Land on a £2.13bn joint venture with US asset manager Blackstone to buy the 30-acre Broadgate Estate in the City.
In August, corporate partner Richard Lever led a team acting alongside Canadian firm Davies Ward Phillips & Vineberg on Amcor’s proposed $2.03bn (£1.22bn) acquisition of Rio Tinto subsidiary Alcan Packaging.
Another headline deal on which the firm acted, this time on the secondary markets, was the sale of a large chunk of 3i Group’s healthcare and technology portfolio. Corporate partners Ylan Steiner and Rob Day led the SJ Berwin team on a transaction involving around 30 investments in 10 separate jurisdictions.
Further signs that the firm understands the need to move away from its previous comfort zone come in its continuing relationship with CVC Capital Markets, led by head of corporate Steven Davis. This yielded a mandate on the private equity group’s attempted purchase of Barclays subsidiary iShares in April.
Indeed, Mergermarket’s league tables show that SJ Berwin was ranked first by volume among legal advisers on European private equity buyouts over the 12 months to October 2009.
It is yet further evidence that the firm has had to tweak its focus to survive, even in a pared-down form.
The corporate group is still split into three arms, with senior partner Jonathan Blake taking charge of fund formation and Davis heading both private equity transactions and M&A. But the demise of traditional private equity funds has meant that the other two stations have had to step up to the plate.
“There’s no doubt that the focus of our work was private equity and real estate,” explains Blake. “We’ve suffered as the market’s suffered, but we’re certainly holding our own. We’re beefing up our non-private equity corporate parts of the firm, but we think that private equity will come back.”
If anything, SJ Berwin’s singular success in fund formation in the past may have sown the seeds of its own decline as the funds market has evolved.
And despite the recent successes, not everyone is convinced that this decline is reversible.
“If you have fund formation expertise you can usually morph that into other things,” says a former SJ Berwin corporate partner. “But having made that their core practice area I struggle to see how they can change it fundamentally, whatever the market might look like.
“I don’t know how many partners were focused on fund formation, but it was a large proportion. In the same way they had a disproportionate benefit from the funds explosion going up, they’re going to feel it disproportionately on the way down.”
Adapting to a new equity market appears to be the key to rebuilding for SJ Berwin.
“We’re not seeing so much classic private equity stuff,” says a private equity partner at a rival firm. “We’re seeing a whole range of other things: the return of hedge funds, real estate, infrastructure funds, shipping funds.
“Firms will find that fund practices are picking up, but it’s less focused on straight private equity.
“It’s definitely improving, but if you have a practice the size of SJ Berwin’s in the funds areas you’ve got a lot of people to keep occupied, so you need to see a substantial recovery to deal with that.”
With no sign of a substantial recovery in the UK just yet, the firm has sought to expand its corporate team overseas.
It has set up offices in Hong Kong, Dubai and Shanghai already this year. Funds formation partner Benjamin Aller has moved to take charge of the Dubai office, while the Hong Kong practice has six partners, including two, Daniel Liew and Peter Tse, who joined from Dewey & LeBoeuf.
So far no partners have been allocated to the Chinese office, but two senior associates, Phillipp Senff and Hailong Ji, have relocated from Frankfurt.
The firm claims that the move eastwards is not an attempt to patch over an ailing home front.
“It’s not replacing existing business,” says Blake. “It’s where we see emerging markets. Ten years ago Europe was the area to develop into and we’ve succeeded very well in that. We didn’t do that because there wasn’t work in London, it enhances our capabilities in London.
“The same is the case with China, East Asia and the Middle East. We’re looking at specific areas there. In Europe we started in fund formation and we’re doing similarly in the Middle East and East Asia.”
That said, the Hong Kong team will also be looking to move into new areas, such as infrastructure, energy and telecoms.
Meanwhile, in the UK, the firm is showing its flexibility by arranging cross-departmental groups based on business areas as opposed to legal disciplines or geography. It is a move designed to win business in a more fluid market.
Such adaptability does not suggest that SJ Berwin is ready to let its corporate activity slide. It will simply have to embrace change.
“Playing to our strengths has worked well,” insists Blake. “But it would be wrong not to think of diversifying.”