Olswang pioneers corporate finance house for assault on high-tech sector
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4 November 2013
Olswang has broken new ground in the technology sector by becoming the first UK law firm to set up a corporate finance house. Known as LongAcre Partners, it is to be established as a joint venture with US investment bank JP Morgan.
Olswang chief executive officer Jonathan Goldstein says: "With the consolidation of investment banking there isn't a huge number of quality investors to choose from. At the same time there is not a skill set within the law firm to offer this either. If you have client demand, you do what you can to find a professional and skilled way to provide it."
While a number of in-house lawyers in the technology sector appear to welcome the idea, there seems to be some confusion in the market as to what LongAcre Partners will actually do. Which model will it follow? Will it ape finance boutiques Durlacher or Broadview, for instance? Neither, according to Goldstein, who is adamant that the Olswang model is unique. "Durlacher's approach is from a securities perspective," he says by way of example. "It has built a fantastic business and is a role model for the industry, [but] it would be wrong to compare the two."
Neither is LongAcre Partners aiming to be one of the plethora of technology funds that has grown up over the past year - although, significantly, it has regulatory authorisation to underwrite securities and act as a principal investor. What this means for Olswang's burgeoning private equity and venture capital practice is unclear; after all, this year it took on the highly-rated Fabrizio Carpannini and Chris Mackie from Berwin Leighton to build up that very area.
With the recent bursting of the technology investment bubble, there is certainly scope for deal-making on the back of consolidation in the market. And funds themselves are becoming much more wary of throwing money at internet ideas whose business plans are written on the back of envelopes. From the little detail that Olswang is releasing, it appears that LongAcre intends to offer advice to clients on straightforward strategic, fund-raising and M&A activity in these markets.
"Our clients have been telling us that they need independent corporate advice at the pre-IPO stage," says Goldstein. "We hope that some of the clients will see it as part of the range of services provided to them by Olswang. But in addition we expect new clients to access it as a standalone independent corporate finance business."
Olswang clients appear pleasantly intrigued by the development. Jonathon West, the general counsel of sportal.co.uk, which used Olswang for start-up, first and second round funding, says: "Had this been established when we were starting up, I am sure we would have found it beneficial. It is an interesting concept."
Stuart Melhuish, chief executive of e-business services company Amaze, says: "I think it's very important that an advisory sector grows which focuses on this [part of the market]. The main focus for small companies is on growing the business, and if they can find a one-stop shop in which they can find quality, they'll use it."
Of course, this initiative throws up one major issue: conflicts. Goldstein argues that recommending LongAcre Partners to Olswang's clients who are seeking outside investment to fund their projects will not bring about any conflicts of interest.
"Our obligation as a law firm is to give the best advice to our clients," he says. "In the same way that I would suggest they used our property department or litigators if they needed service in these areas, providing that we declare our interests in that vehicle, I do not see where the conflict matter arises. The businesses are both regulated separately, LongAcre Partners by the SFA and Olswang by the Law Society. There are Law Society rules about how to deal with a separate business with which we intend to comply."
Melhuish is unconcerned at the conflicts issue. "I wouldn't have thought that the independence of legal and financial advisers was important," he says. "The fact that [LongAcre and Olswang] are linked would not be a problem. If anything, it would help because they'd know what's going on."
Key to putting the deal together was Steve Smith, CEO of investment management boutique Dune Partners and board member at LongAcre, who knew JP Morgan bankers well.
Given the number of larger players keen to target the start-up sector, the choice of JP Morgan is interesting - particularly since the bank has most recently been associated with boo.com, the failed e-tailer which was one of the most expensive start-ups ever. Goldstein shrugs off JP Morgan's role in the boo saga.
"I think that if you look around at any of the investment banks, certainly most of them have one or two examples in their locker in which they have not always done as well as they hoped," he says. "I don't think this one incident should tarnish the fantastic reputation which JP Morgan has built up over the years." Rather, Goldstein is bullish: "There's a serious marketplace for us to attack."
Simmons & Simmons: MatchCo
An internet service which allows both the companies and potential investors to visit the website and find a suitable partner to help develop and fund their ideas. Attracted 5,000 registered members in the first month alone.
Field Fisher Waterhouse: Incubator
Linked directly via a website to the firm's IT and online law group, it was set up in September to advise clients running or wishing to set up e-commerce business. Incubator is linked to other business specialists who can offer guidance on related issues such as trademarks, advertising and marketing, data protection and finance.
LongAcre Partners will be a separate limited company in which Olswang partners will have a 60 per cent share, including a 10 per cent allocation for the firm's staff.
JP Morgan's $1bn financial services investment fund JP Morgan Corsair II Capital Partners has taken a 15 per cent stake as part of the deal and has put up most of its initial $10m start-up capital.