22 April 2002
Freshfields Bru-ckhaus Deringer has decided that small is beautiful. Co-head of the securities practice Tim Jones revealed to The Lawyer last week that the corporate department was going to start hunting clients outside its primary territory, the FSTE 100. Freshfields has not abandoned the lions of the corporate world, but its new safari strategy will leave room for the smaller cats - unlisted but fast-growing small and medium-sized companies.
Freshfields says the corporate department is growing and that the FTSE 100 does not offer sufficient opportunities for expansion. The change in focus is understandable in the current economic climate. A natural response is to look down the food chain and try to market to smaller, high-growth firms.
Freshfields intends to pounce when this shy, retiring species is at its most vulnerable - in the run-up to an initial public offering (IPO) on the London Stock Exchange. The firm believes this is a good time because companies often consider changing their legal advisers in the run-up to a stock market listing. It is also a good time to get close to key board members, as any lawyer who has been up at 4am nursing a nervous entrepreneur through an IPO will tell you. The idea is that the aggressive, ambitious, expansionist client will then want you to help it spend all the newly acquired dosh on lots of expensive mergers and acquisitions.
What The Lawyer IPO Survey 2001 shows (see page 24) is that Freshfields has a major task on its hands. Between July 2000 and December 2000, although Freshfields acted on six IPOs for the banks, the firm did precisely zero as adviser to the issuer. Aside from the potential of future instructions, an IPO for the issuer is significantly more lucrative. Like all investment banks' best friends, Freshfields formed a dedicated equity capital markets practice in the IPO boom times to become closer to the banks. With its lack of corporate clients, the firm is to some extent the victim of its own success with the US investment banks.
Arch-rival Linklaters is head and shoulders above the chasing pack in The Lawyer survey, with 14 IPOs. Linklaters also managed to balance work for issuers (eight IPOs) with work for the banks (six IPOs).
Dynamic entrepreneurial companies are notoriously difficult beasts to handle, but there is a group of (comparatively) small entrepreneurial law firms that have been very successful in taming them. Standing out in The Lawyer survey is Osborne Clarke. The firm is perceived to have been stuttering recently and has had its problems, with the quarterly partner draw cancelled and rumours of tension between its various offices. However, last year it did brilliantly on IPOs by volume, acting on four for the issuers, which, Linklaters aside, was more than any other firm.
Corporate partner Simon Fielder puts the firm's success down to a talented corporate finance team that is competitive on fees - a key concern for smaller companies. The firm also has the advantage of regional offices close to a lot of high-growth companies - in Bristol and the Thames Valley, for example. Because Osborne Clarke can find venture capital, do an AIM float or support a full listing all equally competently, the firm is also a good port of call for companies that are not quite sure what they really want. Most crucially of all, its corporate finance people know how to talk to gun-slinging entrepreneurial types.
So Osborne Clarke is just the type of firm Freshfields will have to beat to get the clients it wants. The magic circle firm intends to leverage off its relationship with venture capitalists to get inside information on who is about to float. Except Freshfields has virtually no relationships with venture capitalists in the mid market. The firm will also have to be a lot more flexible on fees than it used to be. It is hard to bet against Freshfields given the determination with which it reeled in the US investment banks in the 1980s, but this is different hunting ground and there are several firms that will be defending their well-trodden territory with spears.