FINANCE

Out here in Silicon Valley everything is done differently, right? Clients beg for lawyers, firms turn away investment banks in favour of questionable start-ups, and people commute from the City to the suburbs. Only one thing is obviously the same as in London – everyone admires Latham & Watkins.

At the beginning of the year, two of the strongest finance firms on the West Coast of the US were engrossed in merger talks with London firms. Lathams was eyeing Ashurst Morris Crisp and Orrick Herrington & Sutcliffe was flirting with Bird & Bird. Although both sets of talks collapsed, the two US firms had very much the same strategic objectives. They wanted to move into London and flex their financing muscles, and they planned to cast their net across Europe. At the same time, both were desperately trying to crack Silicon Valley.

Silicon Valley is all about local contacts with the start-ups and the venture capitalists. There is plenty of investment banking underwriting work on the market but that was not what either firm wanted. They wanted to catch young companies before they went big, and then they would export the overflow to their other offices. There is not much high-end financing work out here, it is all IPOs, M&A and intellectual property, but if you catch them young… you know the rest.

The fact that Lathams is around twice the size of Orrick hardly boded well. Such a behemoth cannot usually move so quickly. But within weeks of the breakdown of the talks, Lathams had recruited three big-hitters to London.

There was Kevin Dunn, the European general counsel at GE Capital, Oonagh Whitty, a tax partner from Watson Farley & Williams, and the head of banking at Weil Gotshal & Manges James Chesterman. Between them they boosted the team in acquisition finance, leveraged buyouts, high yield, asset-based lending and structured financing. Most importantly, they provided what, according to Lathams, the investment banks want most – a one-stop shop offering high yield and senior debt capability.

In addition, head of New York Philip Coviello and the chair of the corporate department in Los Angeles Bryant Edwards set up in London. Goldman Sachs, Credit Suisse First Boston, Deutsche Bank, Lehman Brothers, Morgan Stanley, JP Morgan and DLJ – now part of CSFB – must have been licking their lips.

Meanwhile, Orrick is struggling along with 12 lawyers in London, eight of whom are partners. Last month, the founder of the office Tamara Box left to set up a structured finance practice at Ernst & Young’s associated law firm Tite & Lewis. She admitted recruitment had been a problem in the City while the firm was so obviously still on the lookout for a merger.

But out here the firm landed on its feet. Last year, Craig Johnson, chairman of the Venture Law Group (VLG) in Silicon Valley, called Orrick managing partner Ralph Baxter. Johnson was proposing to help Orrick into the Valley, referring the bulk of those clients that outgrew VLG to it. VLG is more a consultancy than a law firm, focusing on a few select start-ups. The firm makes around 50 per cent of its money from taking equity out of IPOs.

Orrick jumped at the offer and is hiring corporate lawyers on the back of it. It remains to be seen whether it is really a way to build a practice out here – on the back of someone else’s client base.

Lathams took the initiative nine years ago, way before the Valley was on rivals’ radar screens. Local M&A hotshot Kit Kaufman opened Lathams’ office after leaving another Valley favourite Heller Ehrman White & McAuliffe.

This summer another Valley M&A name left Cooley Godward for Lathams. Alan Mendelson brought the firm a strong start-up practice, and Lathams now claims to offer a full service from start-up to who knows where. Lathams is now regarded as the top out-of-town law firm in the Valley.

A sceptic might ask whether targeting everything is going to stand up in a recession? Whatever happens, Lathams and Orrick will be the barometers.