Portable business: the key to making private equity work

When it comes to their legal affairs, private equity houses have tended to be creatures of habit. Generally they prefer to return to the same lawyers time and time again.

As a rule, corporate law is a relationship-driven business, but the bond between a private equity house and its legal adviser is a particularly strong one.

Hence the almighty kerfuffle that often ensues when a private equity partner ups sticks from one firm and moves to another. They’re not just packing up a box of tacky corporate stationery, but potentially a handful of the firm’s most lucrative and reliable clients. And it has become increasingly clear that a high-profile partner move can make or break a firm’s PE practice.

“It doesn’t matter to private equity funds where their lawyer is,” says one leading City finance partner. “Private equity clients have never been as institutionalised as banks, and they are among the most savvy clients in the market.”

The ties that previously existed between firms and private equity houses have been loosened over the past few years, as an increasing number of their lawyers have changed allegiances. Hence, the cherry picking of private equity partners that the market has seen over the past 12 months. 

For some, lateral partner hiring has proved to be a sure way of plugging a geographical gap in a particular client relationship. Simpson Thacher demostrated this was possible back in 2009, when it brought in Clifford Chance private equity partner Adam Signy to solidify its relationship with private equity giant KKR in Europe (5 May 2009).

The aim was to mirror the firm’s strong ties with the client in the US. Within months Simpson Thacher was advising KKR on the £955m buyout of retailer Pets at Home, the firm’s first transaction for the private equity house in London, where it advised on both financing and M&A aspects (27 January 2010).

Last April, Latham & Watkins took a leaf out of its US rival’s book in hiring Clifford Chance’s private equity chief David Walker (8 April 2013). The firm had long been Carlyle’s go-to adviser in the US, but Walker was the firm’s point of contact in the UK.

Just months after joining Latham, Walker secured his first Carlyle mandate at his new firm, its acquisition of global packaging supplier Chesapeake (8 July 2013). Since then, Latham has also picked up another Clifford Chance private equity partner, Kem Ihenacho, who also works closely with Carlyle on its African projects (18 February 2014). 

Another firm that has been using private equity as a growth tool is Shearman & Sterling, which has effectively grown a substantial practice from scratch off the back of its lateral hires. The firm strategically hired three partners from Weil Gotshal & Manges in April 2013, with the mandate of making a splash in the City’s PE market. The trio, consisting of private equity partner Mark Soundy, corporate tax partner Sarah Priestley and PE associate Simon Burrows brought a transferable book of business including clients Bridgepoint, Permira and Arle Capital – all of them new to Shearman’s London roster (15 May 2013). 

It seems that White & Case had transferable business on its mind when it hired Linklaters’ private equity stars Ian Bagshaw and Richard Youle last October (17 October 2013). And so far, it looks as if the strategy is paying off.

Last month, the firm won a first-time appointment to HgCapital’s legal panel thanks to Youle’s ties with the business (18 March 2014). And now it has emerged that Rhone Capital has also followed Bagshaw to his new firm, winning its first-ever instruction on the group’s €149m acquisition of ASK Chemicals (24 April 2014). 

It’s a formula that works, and shows no sign of slowing any time soon. With an incentive that compelling, no wonder firms seem so happy to splash the cash when it comes to making top-grade private equity hires.