Too little too late? Slaughters plays catch-up in the private equity race
30 April 2007
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True to form, Slaughter and May is king of the boardroom this quarter. The firm is advising Alliance Boots on the £11.1bn management buyout backed by Kohlberg Kravis Roberts (KKR); MyTravel on its merger with Thomas Cook; and it started 2007 with a bang, advising Corus. No wonder average profit per equity partner (PEP) is north of £2m.
But with private equity significantly altering the public M&A landscape, is it viable for Slaughters to just rely on clients that are either targets on headline-making approaches or are undertaking the occasional mega-merger with another public company?For such a successful firm, it might seem odd that Slaughters has not targeted what has proven to be a very lucrative area of work for its rivals. One Freshfields Bruckhaus Deringer corporate partner says: "There'll always be enough work for Slaughters just advising the plcs, but I do think they're missing a trick and a chunk of what could be very profitable work."
The list of representative private equity work on Slaughters' website shows that there has been the odd £200m spin-off since January - if one ignores the Alliance Boots deal, where private equity is on the other side. But in the same period, Freshfields advised on e8.34bn (£5.65bn) worth of acquisitive private equity deals in Europe alone in 2007, according to research by mergermarket. Freshfields came fifth in those rankings, which were topped by Clifford Chance's e24.12bn (£16.35bn) worth of deals.
Another issue Slaughters will have to face is that private equity is changing the legal market too. For example, Clifford Chance was not best known for its corporate practice two years ago but, off the back of its ties with private equity, has scooped roles on the biggest mandates around. The firm is advising KKR on the Alliance Boots bid and Barclays on its merger with ABN Amro. It also acted on the CVC Capital Partners-led consortium that failed to acquire J Sainsbury and it has a long-term relationship with CVC.
As the mergermarket tables below show, Slaughters is nowhere to be seen in the table of top advisers on the buy-side of general M&A in Europe.
In a forthcoming podcast interview with The Lawyer, Slaughters senior partner Tim Clark admits: "Private equity represents the single biggest phenomenon in M&A today. We were slow off the mark, it has to be said, and we tended to be sellers rather than buyers."
But can a PEP of £2m ever be wrong? One senior Slaughters M&A partner says: "Do we act on as much private equity as Freshfields or Clifford Chance? No. Does it matter? No."
City partners say advising private equity houses is important for reasons beyond money. The Freshfields partner says: "Advising plcs, you need to know how private equity thinks, how it acts and how consortia act." All those pure private equity deals may not have headline values - and might not justify Slaughters' eye-watering fees - but they are an important indicator of market trends and of private equity's takeover tactics, ones that will no doubt be applied to some of Slaughters' plc clients sooner or later.
The official line is that Slaughters is very much committed to private equity. Several years ago the firm decided it needed to "shift up a gear in private equity", according to head of corporate Chris Saul. A core group of corporate and finance partners - Saul, Jeff Twentyman, Mark Horton and Philip Snell - upped their focus on winning clients and spotting trends. Slaughters' website shows 19 partners able to work on private equity - sizeable by any measure. But in reality the firm has no dedicated unit - all these partners practise in other areas and just dabble in private equity.
Clark contends that Slaughters partners are characterised by their adaptability. But another corporate partner says they view private equity as "just part of general M&A".
The exception is Twentyman, the most prominent of Slaughters' private equity team. He manages the prized Terra Firma relationship, which Slaughters advised on a couple of disposals last year.
There are also high hopes for Mark Zerdin, who becomes a partner this week. He has in-house experience with private equity and has ties with KKR favourite Simpson Thacher & Bartlett. Saul maintains that the practice has had good mandates and he is happy with the headcount and platform. But other senior corporate partners tell The Lawyer they would like to see an expansion of the firm's private equity capability. How do they do that?While Linklaters recognised that it desperately needed to fill the void left by partners Graham White and Raymond McKeeve after their 2006 exit for Kirkland & Ellis, and was eventually able to fill it with Clifford Chance partner Ian Bagshaw last month, this is not a strategy open to Slaughters, which does not make lateral hires.
Out of necessity, could private equity be the area that pushes Slaughters to break its unofficial policy? One Slaughters partner says the firm might consider taking on a lateral if the fit was right. And therein lies the rub.
The Slaughters ethos of institutionalising clients is not compatible with partner-intensive private equity. As one Ashurst partner puts it: "The typical old-school, generalist Slaughters partner doesn't fit with the rough and tumble of private equity."
Private equity clients also do not like being presented with a team of associates with a rainmaking partner only coming in at the start and end of a deal - a model that works fine for traditional boardroom clients.
Building up the acquisition finance team, again not a forte of Slaughters, is also important. Which is why it is so vital that Slaughters lands deals such as Countrywide, where it is advising a UK-based takeover vehicle for Apollo - Wachtell Lipton Rosen & Katz's longstanding client - on its £1.08bn takeover. It is a rare example of the firm advising on the buy-side of a prominent take-private.
Certainly this is how Slaughters sees its strategy. Clark says: "Looking to the future, I think we have to recognise that private equity is going to be a significant part of M&A and we have to concentrate on acquiring new clients and establishing relationships." And it might be enough just to carry on being Slaughters.
The firm's focus on plcs could see it miss out on the biggest thing to hit M&A in recent years. By Caroline Binham