In corporate, one mid-market firm continues to punch above its weight
12 May 2008
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While some corporate lawyers have reportedly been twiddling their thumbs since the credit crunch took hold, Macfarlanes started 2008 with a couple of stellar deals.
The firm represented aluminium miner Alcoa, alongside Chinalco, in a share raid on Rio Tinto worth $14bn (£7.16bn).
It was the world's largest-ever dawn raid and saw the two companies snap up 12 per cent of Rio Tinto in a battle for control of the mining giant that is still raging.
Then Macfarlanes landed a drinks megadeal in the form of Pernod Ricard's £4.5bn acquisition of Absolut Vodka producer Vin & Sprit.
Two ;multibillion-pound transactions since the start of 2008 - how many other mid-market firms can claim that?But then Macfarlanes has always punched above its weight in the corporate arena. Peter Goddard, company secretary at longstanding Macfarlanes client Brit Insurance Holdings, says: "They're able to work with magic circle firms and the coterie of investment banks and accountancy firms. But they're not a huge legal machine like Linklaters."
Or as one partner at a rival firm put it in a slightly more informal fashion, Macfarlanes is the "mini-me" Slaughter and May.
Like Slaughters, Macfarlanes trades on its status as a high-end independent law firm to bring in cross-border transactional work.
The two aforementioned deals were truly international undertakings. Alcoa, which is based in Pittsburgh, was bidding with Chinese state-owned Chinalco for shares in Rio Tinto, which is listed on stock exchanges in New York, London and Australia.
French drinks giant Pernod Ricard, meanwhile, had to negotiate the global distribution of Absolut Vodka. Not bad for a single-site firm.
Also ;like ;Slaughters, Macfarlanes uses a network of friendly foreign firms to service clients abroad.
Senior partner Charles Martin says: "Our strategy is different to a lot of firms'. We work with a number of independent firms in each jurisdiction of importance to our clients."
On the Pernod deal the firm worked ;alongside Debevoise & Plimpton in the US, French firm ;Gide Loyrette Nouel and Sweden's Gernandt ;& Danielsson.
A partner at a rival law firm believes ;this international network is one of Macfarlanes' biggest strengths. "They've got some ;good relationships with overseas law firms, particularly in the US, that have been fruitful for them," the partner says.
Debevoise actually represents something of an exception in the roster of Macfarlanes' friends, in that it has a considerable practice in the UK. The lucrative relationship has been centred solely around Pernod Ricard, which Macfarlanes introduced to the New York firm when it was instructed on the £5.5bn Seagram purchase in 2000.
Martin reveals: "We work with all the leading US law firms that don't practise English law or that only practise English law to an incidental extent. We'd never find one firm that could meet all our needs."
It is a similar picture in other foreign jurisdictions. The firm benefits from particularly established relationships in France and Germany, where few firms have a significant interest in UK law. It is also building contacts in India, China, Russia and South America. According to Macfarlanes head of corporate Kevin Tuffnell, up to 40 per cent of the firm's work has a cross-border element.
And the rest? A look at Macfarlanes' major clients in 2007 reveals its traditional areas of strength: media, hotels, corporate real estate and wine and spirits. Star clients include financial information provider ICAP, L-3 Communications, Omnicom, JD Wetherspoon, Just Retirement and Virgin.
Not that the firm targets specific sectors. Partners claim they prefer to follow clients to active areas of the market, rather than vice-versa.
"We're high-quality lawyers first and foremost," says corporate partner Tim Lewis. "We operate in a broad range of sectors."
Last year the firm had a hand in 75 M&A transactions with an average deal size of around £350m.
The corporate practice has traditionally been bolstered by Macfarlanes' reputation for private equity work. The firm has an enviable list of clients, including Jon Moulton's Alchemy Partners (for which it is the sole adviser), 3i, PPM Capital, TA Associates and Blackstone.
But according to one partner at a City firm, Macfarlanes might have lost ground to rivals in recent times.
"The private equity practice has not done quite as well as it might have in the last three or four years," he says. "That's partly because they've got some exceptional lawyers but not quite the commercial ingredient of other law firms."
It is a claim that is firmly denied by Martin, who leads the relationship with Alchemy.
"We did deals last year for 21 different private equity clients. Our client base is going from strength to strength," he insists. "We're also doing more of the larger deals. We've worked on a number of billion-pound deals that haven't happened."
The firm did gain several new private equity clients in 2007, including Blackstone, Caledonia Investments and Darwin Private Equity.
Martin, who enjoys a reputation in the City as a corporate rainmaker, takes up his new role as senior partner this month. But will the firm perhaps live to regret voting one of its top fee-earners into a management role?Martin says he will still devote the majority of his time to clients, while incoming managing partner Simon Martin will take on the lion's share of leadership responsibilities.
The management overhaul is unlikely to herald great changes at the firm - that would not be the Macfarlanes way. Partners at the firm maintain that it will continue to operate as it has always done.
Which includes, unusually, a complete lack of targets. There are no financial goals for partners, practice groups or the firm as a whole.
Asked about Macfarlanes' financial figures for the past year, Martin plays his cards typically close to his chest. "It will be a perfectly satisfactory year," he says. "Our firm isn't about growth. It's about the quality of the practice and the quality of what we do."
Which is easy to say when, in the 2006-07 financial year, the firm posted double-digit growth to break the £100m revenue mark and £1m average profit per equity partner figure. But will that level of performance be sustained?Tuffnell for one is confident about the corporate practice's future. He thinks the firm will benefit from its position in the mid-market, where deals are less reliant on debt - even if this means fewer of the multibillion-pound transactions seen in the early part of this year.
"While we expect to be doing more transactions up the value scale," he says, "there's no doubt that the mid-market is less adversely affected by current conditions."