Shearman’s London office scales back its corporate ambitions
22 September 2008
Finance remains the focus but grand plan to take on the magic circle bites the dust.
Finance has long been the bedrock of Shearman & Sterling’s global practice. As the Manhattan firm pursued its dreams of international expansion, it used its close ties with Merrill Lynch and Citigroup to advance into Europe and make waves in global financial centres, particularly on leveraged finance.
Corporate, however, is another matter. Despite a reasonably stable practice in New York, the London office has failed to gain traction in corporate, having struggled to compete with the magic circle in the capital.
Star M&A hires such as Adrian Knight, who moved from Ashurst in 1999, underscored Shearman’s dedication to building up in corporate. But following Knight’s defection to Skadden Arps Slate Meagher & Flom in 2005, and corporate head Peter King’s departure for Weil Gotshal & Manges in July this year, any hopes of becoming a formidable force in London corporate seem well and truly dashed.
Has Shearman got what it takes to repair the damage and become a corporate powerhouse? The short answer is no. Take King, for example. His close ties with German clients such as E.ON and DaimlerChrysler, as well as institutional investment banking clients such as Merrill Lynch, means there is an immediate hole in the practice.
“It’s clear that Shearman wanted to create a strong corporate practice with Adrian and Peter, but it hasn’t been able to do this because the firm is essentially a finance firm,” says a US partner. “The problem Shearman has is that it’s focused on finance at the expense of corporate.
London’s highly competitive and it doesn’t have enough of a practice to be able to make a real name for itself in the UK.”
So much for the past. What about Shearman’s future? London corporate is a four-partner team comprising Laurence Levy, former Freshfields Bruckhaus Deringer partner Lois Moore, US-qualified partner George Karafotias and young partner James Comyn.
Levy, a former Norton Rose partner, has a good reputation in the City, with relationship clients such as Viacom, while Comyn has developed strong links with Shearman’s Middle East office, capitalising on the firm’s new relationship with sovereign wealth funds in the region.
Last month the firm advised sovereign wealth fund Abu Dhabi United Group on its acquisition of Manchester City Football Club. Levy led Shearman on the deal.
Meanwhile, Comyn’s imminent secondment to the Abu Dhabi office to shore up the new sovereign wealth fund relationships will leave London yet another man down.
“His move has been discussed for some time now and it makes a lot of sense,” says a former Shearman London partner. “It seems wise for Shearman to play to its strengths in finance while times are tough and perhaps not take such a keen interest in maintaining corporate. After all, King has gone and he was the focal point for corporate in the UK.”
It keeps coming back to King. He was crucial for Shearman. Not only did he nurture the London investment banking relationships that are so important to the firm, but he bridged the divide between London and Germany, developing a good relationship with Germany head Georg Thoma – reputedly not the easiest of lawyers to get on with.
“Peter has an excellent reputation in the market and he was a very important part of our practice,” says Levy. “But the reality is that we’re still doing work in Germany from the London office.”
Levy insists that the connection between London and Germany remains healthy, citing the firm’s role on Allianz’s e9.8bn (£7.83bn) sale of Dresdner Bank to Sullivan & Cromwell client Commerzbank.
While a big deal for Shearman corporate, the deal was driven by Thoma in Germany. London played a smaller role, with finance partner Ian Harvey-Samuel being part of the team.
Despite partner defections in London, the mood in Shearman’s New York headquarters is positive. “London corporate has been a strategic focus for us,” says Shearman New York partner and head of international strategy Creighton Condon. “We have excellent relationships in our London office and we highlight this practice as very important to us.”
And yet comment from other Shearman partners is telling. They admit that the firm has no intention of building on its present base.
“We may hire if the right person comes along, but there’s no need for us to focus on massive growth in numbers in corporate in London,” says Levy. “We have a great team of associates and partners and our referral network with Europe and the Middle East is proving very successful.”
It seems that the vision for London corporate has come a long way from Shearman’s grand plans for assaulting the City market. The firm’s corporate practice in London is there to service clients from other jurisdictions, and that is all. How times have changed.
Shearman’s link to Merrill Lynch
Last week Wall Street was stunned by Bank of America’s (BofA) shock acquisition of Merrill Lynch. As longstanding advisers to the investment bank, Shearman & Sterling New York relationship partner John Madden won the mandate for Merrill.
Shearman’s New York relationship with Merrill Lynch dates back more than 50 years. The firm’s emphasis on banking and leveraged finance gave Shearman the capabilities it needed to strengthen this relationship around its network as the investment bank became international.
In fact, it was Merrill’s expansion into European markets that encouraged Shearman to penetrate the UK market and hold on to a relationship that was vitally important.
“Merrill was involved in many of the European privatisations at that time,” recalls London Merrill relationship partner Richard Price. “We needed to be a part of that and made sure we had people on the ground in Europe.”
Of the few US firms in the UK even less were equipped to advise on the complex Securities and Exchange Commission regulations.
The leveraged finance market has been a crucial driving force for Shearman’s global strategy. The US trend that travelled to European markets in the 1990s put the firm in pole position to take on mandates for Merrill in Europe.
“Merrill was one of the first key players in the European leveraged market and we had to be there with it,” says Price. “We’ve definitely managed to maintain that relationship over the years.”
In New York partners Madden and John Marzulli are relationship partners and were the first to receive a call last week when BofA acquired the investment bank. In London Price, as well as capital markets partner Ward McKimm, Clifford Atkins and recent Latham & Watkins lateral hire Jacques McChesney, who joined the firm in 2007, all help to manage the relationship.
“Jacques’ experience in European leveraged finance meant he already had a good relationship with Merrill,” explains Price. “He’s definitely a valuable contribution to that relationship in London.”
Shearman’s relationship is on shaky ground now that Merrill has been rescued by BofA. Despite this, the firm remains positive it will maintain good relationships.
“It has been an eventful few days for us,” says Price. “The most crucial thing for us is to maintain the ties we have with individuals we’re close to and that will mean we can create opportunities out of recent developments.”