Freshfields and White & Case: Outside influence
31 March 2008
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White & Case: Outside influence" />Not many people would ;have imagined this, but Freshfields Bruckhaus Deringer partners Maurice Allen and Mike Goetz are instigating an informal finance referral relationship with their former firm White & Case.
It is replete with imagined contradictions. Two men who exited the firm after a blazing row with the management are funnelling work back to their former home? Unusual. And Allen, having grown up at Clifford Chance and spent 13 years in US firms, is returning to the magic circle - and to the very firm that offered him a job in 1995. Cute.
But look closer, and there is some neat logic at work.
In the banking world Freshfields is the new kid on the block (or perhaps more accurately, the slow learner at the back of the class). For Allen, Goetz and finance head Perry Noble, the prize is to catch up with Allen & Overy (A&O), Clifford Chance and Linklaters. The informal referrals that used to exist between Freshfields and Clifford Chance - largely due to the relationship between Clifford Chance ;banking ;head ;Mark Campbell and Freshfields partner Sean Pierce - may not be quite so much in evidence in future.
City banking partners are taking the Freshfields hires seriously. "You'd be an absolute fool to underestimate Maurice Allen," says one prominent magic circle banking lawyer.
"And Goetz is a class act," adds another City finance partner.
Much of this respect is based on the pair's track records. Following the dotcom crash of the early 2000s, Allen and Goetz built a business for White & Case from scratch. Allen had already done the same in his six-year tenure at Weil Gotshal & Manges in the 1990s.
But is there room for a fourth firm? Allen has clearly been watching Linklaters' climb towards the top tier very closely. "I'm a big fan of Linklaters' banking practice," he says. "What clients need are personable, service-orientated, user-friendly lawyers. Every deal doesn't have to be an ordeal."
And in many ways Freshfields will emulate Linklaters' targeted approach. Where Linklaters focused on Barclays Capital and JPMorgan Chase, Freshfields will similarly conserve its limited resources and go after Deutsche Bank and Goldman Sachs. No surprises there - Allen, and particularly Goetz, are highly regarded by Deutsche.
Noble's predecessor Simon Hall had an excellent relationship with Deutsche, but Freshfields' links with the bank have never been transactional (although Frankfurt partner Yorck Jetter has a virtual lock on its German acquisition finance work). With Deutsche, Allen and Goetz will be going head-to-head with White & Case - but they will also be trying to shave work off A&O, Clifford Chance and Linklaters.
Meanwhile, Freshfields has also enjoyed a relatively easy institutional relationship with Goldman Sachs - and it helps that its general counsel William Elliott is a Freshfields alumnus. Banking partner Presley Warner has often appeared on sponsor finance work for Goldman Sachs' private equity group. Both Allen and Goetz acted for Goldman Sachs at White & Case - Allen advised the bank on the mammoth e27bn (£21.18bn) financing of Mittal Steel's bid for Arcelor in 2006. But the bank is already well served by A&O and Clifford Chance, and so will always a tough nut to crack.
Allen and Goetz will also be leaning heavily on two new promotions into the department - Tazim Hall and Alex Mitchell. And it won't just be about Goldman Sachs and Deutsche - expect to see the Freshfields team marketing to Royal Bank of Scotland (RBS) and JPMorgan, to name just two.
Banking partner Chris Howard - at the moment the only pure lender-facing partner that Freshfields could boast - has developed excellent links with RBS, for example.
So much for the plan. In the meantime, Freshfields will have some hard thinking to do on the practicalities. As Goetz says: "We have to convince the clients that we're dedicated to servicing them and that we can deliver."
It is in delivery where Freshfields has failed in the past. Indeed, the history of its finance practice is a history of astonishing indecision, even when it was making partners of Brian Gray (now at Linklaters) and Chris Howard. It was only when Noble took over that the business got any definition, but his record has been one of downsizing - or as he prefers to term it, "reshaping".
On his watch, dozens of partners have left as the firm reduced its exposure to project finance and asset finance. Three years ago 25 per cent of the finance partners were projects, PPP, oil or gas partners. Today that figure is more like 12 per cent. Meanwhile, up to 15 per cent of the finance partner headcount were asset finance specialists - a figure that has dropped to between 5 and 10 per cent.
"We wanted to reshape the finance practice and the changes we made were about laying the foundations for the practice, which would be complementary to the firm's franchise," says Noble. "What had evolved since the late 1980s were five to six large niches operating fairly independently of each other. We weren't making enough money and we didn't have the sufficient client overlap to be strategically relevant to the firm."
The oddity of Freshfields is that its financial institution client base has always been exceptionally strong, accounting for a third of total revenue, but that representation has been at corporate board level. It meant there was plenty of high-level regulatory, M&A and litigation work coming out of banks, but precious little transactional lending work. Indeed, less than 30 per cent of the banking department's revenue actually came from banks.
So Allen and Goetz, plus their acolytes Hall and Mitchell, are in the heady position of being portrayed as the new saviours. But for them to accomplish that the cultural buy-in required at Freshfields is immense. Naturally, all concerned insist that this is the case. However, there are some questions to answer on staffing and priorities.
First, leverage. How can Freshfields service ;the ;banks ;properly? Investment banks in particular, which have fewer in their execution teams, require a high level of transactional support in service partners and associates.
At the moment Freshfields' banking department has a leverage of around 3:1 (and that is being generous).
"We'll need to add resource to support Mike and Maurice and our two new internal promotions," admits Noble, who says that he is aiming to get to a 4:1 leverage in banking.
It is also a good bet that Freshfields will opt for a more concentrated secondee programme than it currently has. That is the way that Linklaters, and indeed Allen and Goetz's former firm White & Case, managed to embed themselves with their key clients.
"I guess we'll be doing some external recruitment," notes Allen.
Second, the switch to lender work also means a change in gear for existing partners. Pierce, for example, who has worked almost exclusively in a sponsor milieu for the last four years, may find himself back on his old lender stamping ground. (If so, then he and Allen will be reliving their times together at Weil in the 1990s.)
"We're focusing our resources on a limited number of institutions and if we want those relationships to operate on the right level we all have to do what we have to do," says Noble bluntly.
Third, Freshfields' lack of a hefty debt capital markets practice will pose enormous problems to the development of a credible acquisition finance practice. At some point the firm will have to be able to handle commoditised work in the way that A&O, Clifford Chance and Linklaters are able to - but Freshfields has always been very reluctant to take that step.
Fourth is the biggest question of all: is Freshfields truly committed to this? It is not as if a lender-facing leveraged finance practice has been top of the firm's agenda in the last few years.
"To a certain extent it's opportunistic," acknowledges Noble, "but it's entirely consistent with what we're doing." The hire of two of the biggest personalities in banking has made most of the City sit up. But much speculation has centred on whether Allen and Goetz will last the pace there, or run into another bit of strategic wrangling along the way.
"There's always a danger that expectations have been raised too high and people think it's sorted," says Allen. "It's going to be hard work."
For the moment their political position is secure. Allen and Goetz are supported by influential individuals in the corporate department - namely Tim Jones, Mark Rawlinson and Will Lawes, not to mention chief executive Ted Burke, who knows Goetz of old.
With the credit crunch, there is space for the team to build. With deals on hold, trips to the pub are lengthening, and Freshfields is counting on getting some significant airtime - and it will use its new boy status to its advantage.
As one banker puts it, A&O and Clifford Chance are the "old" magic circle, with the "new" magic circle being Linklaters and now Freshfields. Right now, Freshfields' position as the outsider suits Allen and Goetz just fine.