Wary growth gives Milbank the edge
26 October 2009
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Wall Street firm wants to grow UK restructuring - but not too fast. More than a year after Lehman Brothers’ collapse last September, Milbank Tweed Hadley & McCloy is reaping the rewards of its plum role advising the creditors’ committee of the failed bank.
But Milbank chairman Mel Immergut refuses to be smug about the instruction. Quite the opposite in fact - he has learnt some serious lessons during the past year about firm survival in a recession.
“I’ve learnt you should never assume that it’s impossible to have a down year,” says Immergut. “We thought we’d built a firm that would always do well because we had 40 per cent of the practice in restructuring and litigation. We did well in the last two recessions. But when you have a cataclysmic change, like we’ve seen, there’s almost nothing you can do to protect yourself against that.”
Despite its role on Lehman, Milbank suffered in 2008. Average profit per equity partner (PEP) dropped by 16 per cent, from $2.53m (£1.53m) to $2.1m, while revenue fell by 3 per cent, from $643m to $621.4m.
It was a tough year for Milbank in all sorts of ways. Even the Lehman deal has had its fair share of complications. In November the original lead partner, restructuring specialist Luc Despin, defected to Paul Hastings Janofsky & Walker to become chair of its global restructuring practice.
Despin was a well-respected figure at Milbank. Lehman aside, he led the firm on a wealth of high-profile instructions, including advising the creditors’ committee of Enron after its 2001 collapse. Indeed, it was this experience that led to his role on Lehman.
“Luc was the real heavyweight in the restructuring practice,” says one New York-based recruiter. “Sure, it won’t collapse without him, but there’s no doubt he was a big loss.”
But Immergut does not focus on the past. For him, the future of the legal market and how Milbank should react to lessons learnt during the recession is of critical importance. Balancing appropriate strategic growth while avoiding unwieldy expansion is the key.
“I think we’re in for a period of time where law firms are going to be much more conservative with headcount growth,” says Immergut. “We were lucky because we stayed at a relatively small size for a big firm and the larger US firms have really had to slim down significantly. They were overleveraged and oversized for the markets they were serving.”
Despite Milbank’s historically cautious attitude to growth, the firm has not been immune to the impact of the credit crisis. In November last year it joined the scores of US firms forced to reduce headcounts, laying off a total of 49 lawyers and 40 support staff. It has also implemented a more restrictive global hiring strategy that has been in place for the past 18 months.
Growth may have been restricted, but it was not frozen. The firm took on Ashurst head of restructuring Nick Angel in August and commercial litigation partner Julian Stait from DLA Piper in April.
Angel and Stait represent a new era for Milbank in the City, one that puts London at the centre of its growth strategy as the US firm aims to bulk up in litigation and restructuring.
At Ashurst Angel built up a broad restructuring practice advising on both debtor and creditor instructions. In 2007 he led a team advising on the £680m restructuring of Belgian company Ontex. On the creditor side he developed ties with RBS and BNP Paribas.
In recent years Angel made a deliberate effort to build up Ashurst’s funds client base in the restructuring group, leading a team on Cerberus’s 2007 £220m acquisition of DIY group Focus. It was his fund and creditor expertise that appealed to Milbank.
“Milbank has a lot of financial institution clients, so naturally that will be where the practice leads,” says Angel. “But if debtor work comes in I’m able to do that because I have that broad base of experience.”
But it will not be easy for Milbank. Although Angel’s expertise is well-known in the market, he is the firm’s first and only restructuring partner in London. Reflecting its US practice is going to be tough.
“What they lack is scale,” states one former Milbank partner. “There’s a great opportunity here, but they need to bulk up significantly if they have any hope of establishing a transatlantic restructuring group.”
Rather than building out purely in restructuring, Milbank has opted to develop a general contentious practice that can, if need be, slot into insolvency.
Stait’s hire represents another first for Milbank. Joining in April, he launched Milbank’s commercial litigation group in London. His practice is weighted heavily in technology, media and telecoms. Clients including Cable & Wireless, Colt Telecommunications and Fortis complement the firm’s existing transactional technology practice led by partner Laurence Jacobs. But Stait is keen to stress that his expertise is not confined to the technology sector.
“Yes, it’s an important part of what I do,” says Stait, “but it’s not everything. I’m also very active in major finance and insolvency and restructuring disputes, a number of which have an international dimension.”
Given Milbank’s role on Lehman, Stait is clearly a valuable asset, enabling the firm to deal with Lehman-related dispute issues on this side of the Atlantic.
“It took us a long time to kick-start these groups,” admits Milbank European head Phil Fletcher. “Growth has been gradual and cautious, but that’s always been our attitude at Milbank, particularly in regards to international development.”
Indeed, Fletcher and Immergut’s approach to growth is not new for Milbank. Careful headcount management has long been a central theme for the US firm - its London office has just 14 partners despite launching in the City in 1978.
Leveraging off its project finance practice in the US, London started to grow as a project finance-focused office, with Fletcher and partner John Dewar advancing into the Middle Eastern and European project space.
Finance and M&A were added to London in the early part of this decade when Milbank hired M&A partner Tim Emmerson from Freshfields Bruckhaus Deringer in 2003 and relocated finance partner Kevin Muzilla in 2000 to take advantage of the growing European high-yield market.
Muzilla and Emmerson made headway. Emmerson and M&A partner Michael Goroff developed close ties with Goldman Sachs and private equity house Apax Partners, while Muzilla broke into high-yield in Europe, securing a number of key mandates for Milbank. In 2003 he led a team advising Goldman Sachs on the £1.3bn leveraged buyout of the high-yield offering of AES Drax power station.
But it was not long before London was hit by departures. Emmerson’s defection to Sullivan & Cromwell in 2007 was followed by the departure of Goroff, who returned to the US to study at Harvard.
“It’s certainly changed,” admits Fletcher. “But we’ve now identified where we need to be. Projects is still crucial for us. What’s next is for restructuring and litigation to be our long-term goals.”
Milbank’s role on Lehman demonstrates the firm’s restructuring strength. The task for Fletcher and Milbank’s new recruits is to fulfil Immergut’s transatlantic restructuring dreams without overexpanding.
“We have buy-in from the firm,” says Stait. “You have to be able to recruit to be able to properly build in these areas. It’s going to take some time, but there are some fantastic people in the market. I for one am excited about being involved at the start and building something new.”
There are opportunities for Stait and Angel to recruit into their practice areas. But one thing is for sure - Immergut will be keeping a watchful eye on who will be next to advance its London office.