The giant client
11 December 2000
If football is anything to go by, then telecoms company NTL is an acquisitive beast. Just look at the number of teams it is sponsoring this season - Aston Villa, Leicester City, Newcastle United, Middlesbrough and Rangers. So at first glance, an observer could be forgiven for thinking that NTL does the same in business. Certainly, it has spent the last four years casting its net far and wide through an aggressive growth programme, which has seen it acquire a variety of companies and alter its appearance and structure beyond recognition (see key deals box, page 21). But when it comes to its external law firms, it is quite different. Instead of spreading out its string of corporate acquisitions between several firms, it has doggedly stuck to one. Since 1996, NTL's main UK firm has been Travers Smith Braithwaite.
Although NTL has used the likes of Charles Russell for litigation and still occasionally uses it for property work, 47-partner Travers Smith has advised on most of the company's deals over the last four years. (Barlow Lyde & Gilbert, which houses several ex-Travers partners, has picked up a couple of smaller deals when Travers Smith has been conflicted out.)
Although NTL's UK annual legal budget for fees is around the £1m mark, funding for major acquisitions comes from the New York office. And although the firm declines to comment on the figures, a source confirms that Travers Smith has regularly billed several million. Last year the firm advised NTL on its £9.8bn acquisition of Cable & Wireless Communications' consumer business, to name just one deal of many. Indeed, Travers Smith's leap in turnover (according to The Lawyer 100, it rose from £29.6m in 1998-1999 to £37m during the last financial year) was fuelled in part by this one client. According to a source, NTL could be responsible for almost 10 per cent of the firm's turnover.
The relationship between Travers Smith and NTL goes back to 1996. Until then, NTL's main UK firm had been Ashurst Morris Crisp. Robert Mackenzie, NTL's general managing director of legal affairs, had joined the company three years earlier from Theodore Goddard. When Ashursts announced that it was conflicted from acting on NTL's bid for Videotron, he looked around for a replacement firm Ashursts. He had come across Travers Smith while in private practice, and in particular telecoms partner Christopher Bell. Mackenzie called him, and without further ado Travers Smith had its foot in the door. Although Ashursts did some other pieces of work for the company that year, by the end of 1996 Travers Smith had taken over as NTL's main adviser, leaving Ashursts out of the frame.
Mackenzie's background in a medium-sized firm was a crucial factor in the ongoing relationship between firm and client. "I like that size of firm - it's my experience. But I specifically went for a smaller firm because the partners are more in control of the product they're delivering," he says. "They understand their clients across the board and the quality control is more uniform."
Over the years Spencer Summerfield has taken over as client partner, although Bell continues to advise NTL on regulatory matters. Indeed, Summerfield's rise to prominence came on the back of his work for NTL. Summerfield was an assistant put to work on Travers Smith's initial Videotron deal (which actually collapsed at the last minute). He continued working for the telecoms giant and led his first deal for it in 1997. It was no coincidence that in the same year he made partner.
NTL has not just earned Travers Smith millions in fees over the last few years, it has also helped to determine the firm's strategic direction, giving it the impetus behind the fledgling technology media and telecoms (TMT) group, which sits within the corporate practice and comprises three dedicated partners: Summerfield, Alisdair Wilson and David Innes. The group acts for clients as diverse as PaceMicro Technology and ING Barings. "We know [NTL] very well and a lot of them are more like friends than clients," says Summerfield. But he is at pains to talk about not just NTL, but about a range of other clients which are serviced out of Travers Smith's TMT group.
The TMT group is a growing practice and Summerfield could be forgiven for wanting to shout about it. Yet it is not only that. A single great client can have a host of advantages, but can also bring with it a range of other issues. "It's actually very difficult and can create massive strains. I wouldn't be comfortable sitting in a firm with one client being responsible for as much as 10 or 15 per cent of turnover," says a senior partner in a rival firm.
And there are wider management issues when a firm has a dominant client. What happens if firm and client fall out for some reason? Or if the client partner quits? Or if the client's upward trajectory begins to falter for whatever reason?
Certainly, while NTL has been on a corporate roll, it has not been immune to the massive dropoff in investor interest in TMT shares. When the dotcom bubble burst, the fallout affected all technology companies. After all, even Microsoft has seen its share price plummet because of market conditions as well as its spat with the Department of Justice.
NTL, too, could be coming to the end of its frenetic growth, albeit temporarily. Its share price has fallen from a peak of $110 (£75.80) to current levels of around $28 (£19.30). Mackenzie concedes that a period of reflection is needed after such a heavy acquisition programme, adding: "We've got a whole bunch of assets that we're happy with, and we're going through the stage of examining them."
The company is now understood to have accrued debt of just over £13bn. Ted Barac, European telecoms and cable analyst at investor service Moody's, says the company will want to continue its European expansion, but adds: "There's been a huge correction across the board. What's going to happen in the future is uncertain. [NTL] has looked into where costs can be reduced and has embarked on a programme of reducing staff."
If Travers Smith does receive significantly less work from NTL, it will not be the first law firm to have found itself in this situation. Lee Crowder, for example, had been on 3i's panel for nearly 50 years, and in 1996 the private equity house accounted for 28 per cent of Lee Crowder's turnover. But Lee Crowder lost a tender process earlier this year and saw its place on the panel go to fellow regional practice Wragge & Co (The Lawyer, 7 August).
It is Pinsent Curtis, however, that has probably learnt the most from its long-term relationship with the Solicitors Indemnity Fund (SIF). Simpson Curtis was working for SIF before it even existed when it advised the Master Policy Scheme from 1976 until 1987, when it became SIF.
But two years ago rumblings began about getting rid of SIF. Although there is still work from the fund - run-off cases and the like - as a body and client, it no longer exists. Although Pinsents is understood to have won places on some of the panels of other indemnity providers such as St Pauls, its traditional key relationship with SIF has changed out of all recognition.
SIF client partner Anson Game, though, believes the expertise and reputation gained from the firm's SIF work will stand it in good stead. He says: "We value our continuing relationship with SIF. We also look forward to building on our relationship with the new providers."
But strong relationships still have their benefits. Reynolds Porter Chamberlain and its key relationship with the Daily Mail & General Trust is a case in point. Like most insurance specialists, Reynolds faced tough times last year and reported turnover growth of only 5.4 per cent to £25.4m in The Lawyer 100 survey 2000. Partner profits also dipped slightly. But what made it a glitch of a year rather than a true stinker was the Daily Mail & General Trust. The corporate practice reported a 38 per cent increase in turnover; coupled with a strong showing in media and defamation, and the Daily Mail & General Trust really proved its worth.
In the meantime, Travers Smith is still basking in its NTL ties. The relationship between the firm and NTL's in-house team is particularly strong. Mackenzie says Travers Smith lawyers really understand his business and that individual relationships can be developed. He adds: "You feel that people are interested in you, and if you have enough business to give them you feel that you are a genuinely important client and are not bullied to give more work."
Travers Smith can relax - for the moment.