Chief's exit puts spotlight on CC's private equity client retention
22 April 2013 | By Joshua Freedman
8 April 2013
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After a testing time with CVC, Clifford Chance now seems poised to lose Carlyle. David Walker’s departure means young guns must step up if the team is to stay strong
It was not quite what Matthew Layton was expecting when the Clifford Chance global corporate head escaped on sabbatical in February this year. The firm’s foremost private equity lawyer partly used his few months off to travel and was therefore in and out of the UK. He was probably not anticipating dealing with the resignation earlier this month of David Walker, one of his practice’s biggest billers and relationship partner for key clients such as Carlyle Group, Equistone Partners Europe (formerly Barclays Private Equity), EQT and Hellman & Friedman.
One Clifford Chance partner described the latter part of Layton’s time off as “disturbed” as a result. This is hardly surprising, given he was watching from afar the departure for Latham & Watkins of his global private equity chief, who is understood to have billed several millions of pounds annually, including an estimated £2m to £3m from Carlyle in a good year.
Yet there will have been a strong sense of ‘we’ve been here before’ for Clifford Chance, and even a hint that Walker’s decision to quit contained an element of poetic justice. For it was Layton, then at the peak of his career, who joined private equity head James Baird in resigning with the intention of heading off to Weil Gotshal & Manges in 2004, only for the duo to be persuaded to stick around.
The two were far and away the City’s leading private equity duo; to call them lynchpins in the firm’s corporate group would have been an understatement. At the time their near-exit was viewed almost as a betrayal, particularly on Layton’s part. And the up-and-coming Walker, who had been made up to partner in 2000, felt as much let down as anyone.
“David was sensitive and was the most offended by Matthew and James Baird [nearly] joining Weil. The reality is Matthew made David his successor - he mentored him,” says a lawyer who was there at the time.
There was very mild annoyance at first, but this did not last, with Layton and Walker - who have worked together since 1991 - continuing to be close friends.
As one ex-Clifford Chance lawyer recalls, “It was a shock when they did it and what was evident was that Matthew needed a lot of support - and he got a lot of support.”
Private equity enterprise
Almost everyone agrees that Layton and Baird’s wobble gave Clifford Chance a much-needed kick in the direction of paying private equity more attention. Indeed, a decade later the firm has made serious strides to increase its focus on corporate - a gradual shift that, tellingly, could even result in Layton becoming global managing partner next year. Thomson Reuters data for UK M&A deals in 2012 put it ahead of Slaughter and May and Allen & Overy and not far off Freshfields Bruckhaus Deringer.
It is therefore ironic that one of the biggest blows to the corporate division came when management chose to break up what was the engine room of the practice.
‘30C’, as it was called, was the crème de la crème of the group in the 2000s, covering a combination of private equity, investment banks and related public M&A, with partners such as Layton, Adam Signy, Guy Norman and Patrick Sarch on board.
Headed by Baird, it was looked upon with jealousy by the wider corporate practice for being far more successful and far more profitable. They sat together, had team meetings, shared a fleet of associates and were basically the firm’s elite clique of corporate dealmakers.
In 2008 30C was disbanded and the other two streams - general corporate teams 30A and 30B - joined it in one large pool. It was not devastating but it meant a highly cohesive gang was being broken up. And it is a dilemma that has not quite been resolved, with the single group split again into three in 2011, before a rejig of where everyone was sitting last year.
“A lot of troubles have happened since they split up,” a former insider says of the demise of 30C.
But as one former 30C high-flier remarks, “The dicking around with groups hasn’t been conducive to a great atmosphere, but I’d be amazed if people would be annoyed enough by it to want to leave.”
Leavers of power
Still, a number of the old elite are not there anymore, in one way or another. Signy quit for Simpson Thacher & Bartlett in 2009. Norman transferred to the Dubai office in 2010. Tim Wright, another 30Cer, moved to SJ Berwin in 2004. And now Walker has quit.
In the meantime, private equity partner Simon Cooke moved to the Hong Kong base in 2009, Ian Bagshaw went to Linklaters in 2007, Baird retired in 2011, Julia Clarke, a partner on the prized Permira account, took an internal role as learning and development partner and, crucially, Layton and Simon Tinkler’s roles as corporate head and London corporate head respectively meant less time spent on client work.
In the associate ranks, Andrew Jessop went to HgCapital last year as general counsel, Emma Danks joined Taylor Wessing as a partner in 2010 and Louise Dumican moved in-house to Carlyle.
And that’s not to mention the likes of Jason Glover, Ed Gander and Stephen Ross, who have exited the related fund formation practice either alone or with teams to join Simpson Thacher, Weil and Man Group respectively.
There are the usual reasons, such as the tendency for headhunters to pounce on firms that have suffered even one exit out of an expectation that the ship is unsettled. (One recruiter admits carpet-calling Allen & Overy (A&O) associates as soon as news broke of private equity co-head Derek Baird’s resignation for Simpson Thacher last November.) Plus there is a sense that Clifford Chance is a tough firm to recruit for at associate level and places unnecessary hoops in front of agencies, turning them into adversaries who are happy to pinch lawyers for their other clients without guilt.
This claim is questionable, however, as the firm has hired a string of corporate associates from magic circle firms in recent months.
But the core reason for Clifford Chance’s position as a target for recruiters is simply that it developed such a leading practice in private equity. Its dominance goes back to the mid-1980s when legacy Clifford Turner pinpointed the industry as an area with potential. It was the first to do this and, rather like SJ Berwin in the fundraising space, snatched first-mover advantage.
According to an ex-partner, “They had the vision to say ‘this is going to be the growth area and we’re going to invest in it’. It’s because of that that CC has had a market-leading practice for a long time.”
The market’s first private equity stars came out of firms that saw the light early, notably Clifford Chance’s Ian Sellars, now a partner at Permira, and future Ashurst senior partner Geoffrey Green. Then there was the second generation: Clifford Chance’s Baird, Chris Hale at Travers Smith, Charles Martin at Macfarlanes and, of course, the mighty Layton. Travers has survived well, but the dominant firm all along has been that of Sellars, Baird and Layton. This had unavoidable implications.
“It’s much easier to attack a number one position than maintain a number one position,” a former partner points out.
Attacking it means not only hiring partners and associates but also spotting opportunities to poach clients.
Permira, possibly the firm’s top private equity client, seems safe in the hands of Layton, despite the time he spends on management, with Jonny Myers handling matters now the former relationship partner has gone upstairs. Simpson Thacher ate into Clifford Chance’s UK relationship with Kohlberg Kravis Roberts in 2009 by hiring Signy, whose move also gifted the US firm Candover Investments, which has since been forced to sell its private equity arm. It was also a lurch for FTSE 100 investment company Melrose, which Signy brought to his new firm by advising it on its failed £1.42bn bid for Charter International in 2011.
CVC you later
But of all the clients to slip away, the most significant and perhaps avoidable one was CVC Capital Partners. CVC, whose managing director of legal Richard Perris joined from Clifford Chance in 2005, was Baird’s top client and a source of instructions for him on its mooted acquisitions of Westminster Healthcare in 2004 and Ladbrokes in 2006, as well as bids for J Sainsbury in 2007 and National Express in 2009 as part of consortia. None came to fruition.
Meanwhile, in the background, Freshfields was making inroads. In July 2003 corporate partner Edward Braham pointed out to acquaintance and influential CVC partner Nick Clarry that Baird’s client Permira, which had just announced a £1.54bn bid for Debenhams, was not entitled to exclusivity because the shareholders had not yet accepted the deal.
By coincidence, Braham and partner Christopher Bown had just advised Selfridges on its £598m takeover by Canadian billionaire Galen Weston, declared unconditional on the same day as the Permira disclosure.
CVC had already been talking to the Debenhams board and pounced. By mid-September it had offered a higher figure of £1.66bn for the department store chain in a leveraged buyout bid joint with Texas Pacific Group (now TPG Capital). The two were advised by Braham and partner Patrick Gaynor, marking the magic circle firm’s first City deal for CVC.
The episode can hardly have done much to endear Freshfields to Permira, although it has won occasional mandates from the buyout house. But for its relationship with CVC, Debenhams was ground-breaking. Bown has taken on the CVC account and led on its acquisition of Starbev in 2009, the sale of Formula One shares worth $1.6bn (£1bn) last year (Clifford Chance was conflicted) and on the motor-racing business’s $2.5bn Singapore IPO, which was planned for last year but has been delayed. And curiously it was A&O and not Clifford Chance that CVC instructed when it put in a takeover offer to insurance outfit Phoenix Group in 2011, with Freshfields conflicted by partner Robert Stirling’s role for Phoenix.
What went wrong with CVC? Baird’s retirement cannot be the sole cause, as this did not happen until 2011. Neither can the Debenhams setback, since Baird continued to be instructed afterwards. Yet it seems clear that Freshfields has become CVC’s neck-and-neck adviser at the very least, and would likely get the call should a big deal come up - as has been rumoured with Marks & Spencer and, more concretely, Betfair, although Freshfields’ longstanding relationship with the latter would leave Clifford Chance or others in with a hope. For one thing, it is understood CVC took the strategic decision to move from a one-firm to a two-firm policy as others such as Cinven have.
According to people in the firm at the time, the CVC slide was a pure lapse of concentration.
“They were in the comfort zone with CVC, but have lost a lot of that to Freshfields,” recalls an ex-partner, referring to the early 2000s before Baird’s exit. The retirement led to David Pearson being put on the account in his stead.
Clifford Chance has kept some work for CVC: it advised on its joint venture with Resource America to form CVC Credit Partners last year and, back in 2010, Sarch and Kem Ihenacho led CVC and Apollo’s buyout of Brit Insurance.
Pearson has several matters ongoing for them right now. And there have been other successes. Among them is Cinven, which has gradually moved away from Ashurst’s Bruce Hanton in favour of Upper Bank Street duo Brendan Moylan and Myers, Freshfields’ David Higgins and Kirkland & Ellis pair Gavin Gordon and David Arnold, who joined the US firm from Ashurst in 2010. The firm acts for 15 of the top 20 European funds, with Tinkler the City’s main adviser to Clayton Dubilier & Rice, while Ihenacho and Myers handle Bridgepoint.
But losing Carlyle, which is all but certain, will be a blow. Walker has had a purple patch of late, advising on the US group’s £1bn acquisition of RAC from Aviva in 2011 and the £650m sale of Talaris to Glory in 2012, not to mention Equistone on its spin-out from Barclays in 2011 on its €1bn (£860m) sale of Global Blue to Silver Lake and Partners Group last year.
“Clients decide what they want to do,” Tinkler muses. “We’ve got such a strong private equity practice, and a finance practice that’s significantly stronger than Latham’s - there’s a number of things we can do that Latham can’t across Europe. We’ve also got the second biggest high-yield practice in the City, including all the US firms.”
Clifford Chance is doing its best to keep Carlyle in the face of competition from both Latham and Linklaters’ Bagshaw, who advised it on its £450m acquisition of Integrated Dental Holdings (Walker acted for the sellers, Bank of America Merrill Lynch) and its failed bid for Securitas Direct, both in 2011.
Ihenacho, who is highly regarded externally and handles Carlyle’s sub-Saharan Africa fund, is the most senior person left on the account, while Caroline Sherrell assisted Walker on the RAC and Talaris deals before being made up to partner last year, after which she has handled RAC-specific matters. Amy Mahon has strong ties to Equistone and has led deals for it with and without Walker, including the Barclays spin-out on which she worked. And all eyes are on senior associate Tom Evans, a private equity starlet tipped for promotion this year, having worked on matters for Permira and IK Investment Partners (formerly Industri Kapital).
And Layton will be busy on his imminent return during an interim period as private equity leader before Walker’s replacement is chosen, with Ihenacho, Myers and Frankfurt-based Oliver Felsenstein and Christopher Kellett all likely candidates.
“The mix of work Matthew does might change a bit - he might be more involved in some of the relationships David did,” Tinkler reveals.
Quite where the next star is going to come from is another matter. What happened with CVC showed there was a succession issue, but with Carlyle, perhaps the most crucial of clients, it seemed Walker was that successor - the closest the firm had to an heir to Layton. Nine years after one close shave with Layton and Baird, Clifford Chance might not get off so lightly this time.
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