26 June 2006
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It was a trophy hire, alright. When Lovells' private equity team, led by Marco Compagnoni, quit for Weil Gotshal & Manges, it underlined the growing power of US firms in the private equity market.
Weil was not alone. With many of the big US funds targeting Europe, US firms have shelled out serious cash to entice UK partners to service the work. In the past few months, Kirkland & Ellis, Latham & Watkins and Skadden Arps Slate Meagher & Flom have all beefed up their sponsor capability, both in corporate and finance.
The US firms say, with some justification, they are the future of private equity lawyering. At the time of the Lovells raid, a Weil source told The Lawyer: "Our stated ambition is to become the world leader in private equity and the number-one private equity firm in London and Europe."
But while they are able to land high-profile partners, the biggest battle Weil and the other US firms now face is how they are going to attract the right associates to help service the deals. And until that happens, US firms will find it difficult to take on the UK giants such as Clifford Chance and Ashurst.
As a former partner warns: "A lot of US firms are trying to garner a [UK private equity] capability and that doesn't just mean one or two individuals or 'rock stars'. It's about actually getting people at assistant level in key jurisdictions, and finance is key."
In and out
The Lovells hires could not have come at a better time for Weil in London, which is going through one of its periodic shake-ups. As Compagnoni and Jonathan Wood arrived in May following their trophy hires from Lovells, Weil corporate partners Wayne Rapozo and Graham Defries headed for the door and new offices at US rival Dechert.
Weil now offers a five-partner transactional private equity team. This comprises London managing partner Mike Francies, Compagnoni, Wood, former Travers Smith partner Mark Soundy and the homegrown Will Rosen. But - and this is a big but - there is not yet a senior acquisition finance lawyer - a serious gap in coverage. "It's no secret that we have been searching for a top acquisition finance partner for several years with no success, but Marco's hire has led a few people to talk with us." Francies says.
But there are also fundamental issues in corporate, underlined by the fact that Weil is about to embark on a massive recruitment drive largely led by private equity partners Soundy and Compagnoni, although New York management are understood to be taking an interest. "We're going to target people rather than waiting for them to come to us," Compagnoni says.
The fact that it is upping its newly qualified salary to £75,000 shows that New York has belatedly recognised the need to invest in London.
And Weil certainly has spaces to fill. It has 19 corporate associates - five of whom joined with Compagnoni from Lovells along with consultant Alison Hampton. And it has lost about 15 corporate associates, or just under 50 per cent, of its supporting corporate ranks in just 18 months.
Senior associates Kevin Santry, who left to join Scottish & Newcastle, and Gudrun Steele, whose destination is still undecided, departed a couple of months ago, largely because of the lack of career progression at Weil.
Their losses are a blow to Weil's corporate and private equity cohort, as they were among the firm's most senior corporate associates with nine and nine-and-a-half years PQE respectively. Santry was shortlisted for assistant of the year in The Lawyer Awards 2005, while Steele was Francies' trainee while still at Clifford Chance.
As a former Weil associate explains: "There is very little career progression. I enjoyed my time there and got some good experience on good deals… but there was no chance to make partner."
Francies even admits that it is difficult to become partner at Weil. "It is a shame because we have lost some good people… but most have gone in-house, which is obviously an opportunity for us."
Weil is having to deal with the perennial problem for US firms in London - whether head office will sanction a growth in partner numbers. And the balancing act for Francies is how to fulfil his younger colleagues' career aspirations.
Since the era of former London head Maurice Allen, Weil in London has been on a much tighter rein. The firm has made up only four partners in London in the past three years, only one of which was in the corporate team - Ian Hamilton in 2004, who was, in fact, a lateral hire from Slaughter and May just a year earlier in 2003. Before him, home-grown private equity partner Will Rosen was the last member of the corporate team to be made up in 2001.
This is not a new trend within US firms in London or corporate teams in the City. Private equity rival Kirkland & Ellis has only made up three partners in corporate since 2003 and Shearman & Sterling has made up one in corporate for the same period, with two further promotions in tax and capital markets.
However, the situation has been highlighted by Wood's entrance into the partnership at Weil directly from a senior assistant role at Lovells. Wood is under Weil's widely accepted minimum requirement of nine years PQE to enter the partnership, having qualified in November 1998.
"It has put a lot of noses out of joint," a former lawyer says, before claiming that, among others, Santry and Steele had been promised partnership, but were later told that there "wasn't the budget for it".
Other associates to leave most recently include: Ivan Duggan, who resigned last Tuesday (20 June) to join outsourcing company EDS; Alex Hand, who resigned three weeks ago for Eversheds; and David Willbe, who resigned two weeks ago to join Defries and Rapozo at Dechert.
"There is a whole combination of reasons why people are leaving… but it is an unfortunate combination of losses," explains one former partner.
As a managing partner at a competitor puts it: "Weil has the cherries on top of the cake, but no longer the cake beneath them." It is an untenable position for a firm that has a clearly stated goal to become the number-one firm for private equity in the world.
"Weil would arguably be stretched on large transactions or running multiple bids," says a magic circle partner who shares a client with Weil. "On the £50m- to-£500m-bracket, mid-market work, the firm would be as good as anyone. But I doubt that you would use them for a huge transaction."
Weil in London can do little without authority from New York. A former Weil partner claims that the firm's approach is to treat its international offices as "branches of New York" - or, as the firm itself prefers to describe it, the 'one firm' approach - and it was likely that the New York management had become concerned that "London was becoming too independent".
Weil sources say New York has acted both as a brake on any rapid expansion in the UK, while also pressurising London to create a transatlantic private equity capability.
Concerns are also understood to have been raised from New York that the hires could fail, just as Weil's highly publicised attempts to poach Clifford Chance heavyweights Matthew Layton and James Baird did in 2004.
New York co-chair of global private equity Jim Westra and co-chair of global corporate Barry Wolf have both been spending an increasing amount of time in the UK and Europe, and were central in the recruitment of the Lovells team.
The London office and Francies in particular have also come under increasing pressure to improve profitability. London's revenue and profits per equity partner failed to impress last year, creeping up by just 4 per cent to £54m and £853,000 respectively, despite New York setting a budgeted rise of at least 10 per cent.
At the time, Francies had been tasked with replicating the firm's success with its key US clients in London, particularly General Electric and Hicks Muse Tate & Furst (or Hicks Muse and Lion Capital as its now-separate US and European arms are known).
"Both of which he has done well," says a colleague. "But the Hicks Muse and Lion Capital split [in 2004] has created work-flow problems for both the US and UK practices."
The Hicks Muse split brought the situation to a head. Lion Capital generated one of the London office's largest mandates last year - advising on Lion Capital and The Blackstone Group's E1.85bn (£1.27bn) bid for the European drinks arm of Cadbury Schweppes. But this is far shy of the multiple mandates generated by Hicks Muse Tate & Furst before the split. Weil has had to regroup.
As such, it is understandable why the firm opted to wheel in Compagnoni, who has proven to have a very transferable practice, sharing several clients (Advent, Providence, 3i) with Weil. He is also reported to bill around the £4m-£5m mark, while his team's collective contribution is reported to have topped £15m at its height at Lovells.
Compagnoni has hit the ground running, proving he is worth every bit of his reported $1.9m (£1.04m) guarantee, with instructions or promises of mandates from all of his lengthy client list, which includes the Barclay brothers, HG Capital, Terra Firma and 3i. He has also already secured Weil a place on Advent's UK panel. Wood supports him on many of those relationships, but in particular also boasts close ties with Providence - a traditional Weil client in the US.
"Marco and Jonathan's hires have been absolutely fantastic. They have enhanced our business and have enhanced our potential to recruit as well," says Francies.
There are plenty of opportunities to build on. According to Mergermarket tables, Weil acted on two of the top 10 European buyouts in 2005 - Grupo Corporativo Ono SA's E2.25bn (£1.55bn) takeover of Auna Telecommunications; and Access Industries acquisition of Basell NV. Getting the deals through the door is not a problem; Francies says the London private equity team secured 150 mandates last year. More disappointingly, it closed fewer than one in three.
The recent hires amplify Soundy's recruitment from Travers Smith in 2004. Soundy secured Weil's place on Apax's panel and the firm's first successful instruction from Bridgepoint last year. Francies says: "Apax was a huge success, especially to get so many mandates in the first year on the panel."
But competitors question how many headline leveraged buyouts Weil will be instructed on by Apax, which continues to favour Ashurst and Freshfields, while the firm struggles to build up its associate and supporting finance capability.
Weil has the talent and the connections to sparkle in the upper end of the mid-market. But it is launching its recruitment campaign at the height of the biggest bull market in corporate for years. It looks like being a long haul.