PPM Ventures has been pretty quiet since it sold most of its stake in UK bingo operator Gala Group back in May 2000. It has made a big investment in the Cannons gym group and an aborted attempt to take success story Bhs off the hands of Philip Green, but the Prudential's venture capital arm has not been the deal lawyer's best friend of late.
Behind the scenes, however, PPM has been much busier. In spring the house got the ball rolling on a wholesale review of its legal services with the aim of dramatically cutting its advisers. There is a myth that all private equity houses like to use lots and lots of lawyers, but for the smaller houses this no longer holds true. Following a trend kicked off by Alchemy three years ago, PPM has decided that it just wants a couple of firms as best friends.
The panel review has been shrouded in the sort of Stalinist secrecy usually reserved by tougher investment banks such as Credit Suisse First Boston. Lawyers are genuinely wary of talking about this one. What PPM has done is to replace a large roster of firms with a single pan-European adviser plus further advisers for transactions handled by its London, Paris and Munich offices. In-house lawyer Gareth Whiley used an extensive tendering process to distil the firms down, with Clifford Chance and Macfarlanes claiming the prime spots.
Clifford Chance has a longstanding relationship with PPM through partner Matthew Layton, whose clients would simply like to clone him. Clifford Chance's appointment as European adviser is a coup for the firm and for Layton personally. The review isn't exactly bad news for Macfarlanes either, which has been appointed UK adviser. It is all the more impressive because Macfarlanes has never acted for PPM on a deal that has seen the light of day. The firm may have done aborted deals, but equally it might have won the pitch from cold.
So there are the winners in the legal auction, but inevitably others lost out. Ashurst Morris Crisp has been retained in some capacity, although probably not quite the one it would like. The firm will only confirm that it is on the new panel, but insiders say it has been retained as French adviser. As for Norton Rose and Lovells, they have both seen a few personnel changes in their private equity departments recently, and it can be hard to shore up client relationships following the departure of a favourite.
Lovells lost Allan Murray-Jones to Skadden Arps Slate Meagher & Flom last year, replacing him with Dickson Minto partner Derek Baird. However, it seems Murray-Jones was unable to capitalise on the PPM account for Skadden. His relationship at PPM was primarily with Martin Clarke, but Clarke has moved on to join Permira. Norton Rose new boy David Bayliss couldn't provide an entrée to PPM either.
So that's the how, but the more interesting question is why. Alchemy broke the mould by going to a single preferred adviser system just under three years ago. The primary criticism levelled at the system is that it will throw up too many problems on conflicts, but that simply has not happened at Alchemy. There have not been more than one or two public deals since the review where the house hasn't used its favourite lawyers at Macfarlanes.
So what are the advantages? Alchemy also uses KPMG as a preferred adviser on the accounting side and key advantages of the system are on tax and accounting advice. The house previously used a variety of firms, including Nabarro Nathanson and, in the US, Fried Frank Harris Shriver & Jacobson. Chopping and changing and not having a single adviser in charge of overall operations meant that Alchemy could have fallen down some pretty big holes on the tax side. This would have hurt investors, particularly as they enter and exit Alchemy funds fairly frequently.
Crucially, Alchemy also became in one fell swoop a big client of Macfarlanes and KPMG, providing the house with increased buying power and an entitlement to preferential treatment. Clifford Chance and Macfarlanes will be expected to provide a whole range of value-added services for PPM; extras such as training and advice on risk management and compliance will be required from one or other of the firms.
There may be an element of cost-cutting in the PPM panel review, but then it is not clear that the house expects to reduce its overall external legal bill – it may just want more stuff for the same money.
PPM is not the only house since Alchemy to go down this route. Royal Bank Private Equity carried out a similar review in 2000, when it was subsumed into the Royal Bank of Scotland's joint debt-equity division Equity Finance. There are good arguments for any house to go the Alchemy route, but it is still a fairly brave move and it is understood that there were significant internal splits at PPM over the change.
Clifford Chance and Macfarlanes are no doubt delighted with their wins, but they could do with the client being a little more active. What they really need is PPM to be spun off by the Pru; that way they could collect all the outsourced fund management work while they wait for the economy to pick up.