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DLA Piper International was boosted by a £30m cash injection after it converted to an all-equity partnership structure while capital contribution demands fell by 15 per cent as a result of the switch.
The firm switched to all equity on 1 May to reduce the its exposure to the bank lending. In the 2011-12 financial year the international LLP had £71m in bank loans and overdrafts, down from £88.5m the previous year. According to co- chief executive Nigel Knowles and CFO Paul Edwards the firm is looking to reduce bank exposure purely because it can afford to.
Knowles said: “[The switch to all equity] was done for a number of reasons: to align us with the US side of the firm, to give everybody the same interest in the firm and to take away artificial barriers to earning.”
Edwards continued: “If you’re on a team you want to be able to get the same medal for winning. [The new structure] is about aligning interests.”
DLA Piper used to have a mixture of full-equity, senior fixed-share equity and fixed-share equity partners. Former UK managing partner David Bradley – who has since returned to fee earning – said in October that under the new system there would be safeguards for partners’ remuneration at the lower levels, with a degree of pay guaranteed for partners up to certain thresholds (20 October 2011).
At DLA Piper a partner’s capital contribution requirement is calculated according to their budget for the forthcoming financial year.
Over the 2011 calendar year, DLA piper International, which excludes the already all-equity US business, had an average of 689 partners, of which 230 were equity. Using that as a guide, new equity partners contributed, on average, around £65,000 each.
Knowles added that the firm had received interest from private equity houses looking to make investments in the firm.
Edwards responded: “If I told the partners that I’d made a deal [with a private equity house] that releases, say, £50m of capital back to them in exchange for a 13 per cent return on [the private equity house’s] investment, they’d think I’d taken leave of my senses.”