Why Macfarlanes needs to show its strength in finance
15 September 2003
Macfarlanes needs to show its strength in finance" />Conventional wisdom has it that success in private equity and a snazzy acquisition finance practice go together like lawyers and gossip. It's no coincidence that the UK's top private equity firms Clifford Chance and Ashurst Morris Crisp have finance practices capable of doing complex, highly leveraged deals.
In this context, the undoubted success of Macfarlanes is something of an enigma. The firm does have a debt practice (which even got itself in on a couple of half-decent deals last year), but it's dwarfed by the corporate practice in terms of profile and size.
Macfarlanes has simply been overtaken by a changing world. Five years ago, private equity was the preserve of a few dedicated fans such as SJ Berwin and Ashursts, with the odd boutique such as Dickson Minto thrown in. Now that private equity houses are heavily involved in mainstream public mergers and acquisitions in Europe, every law firm and its dog wants to be in private equity.
The big deals are highly leveraged and the banks are falling over themselves to lend to private equity houses. Schneider's massive £3.19bn selloff of Legrand is a case in point.
So, when debt is the key element of a deal, wouldn't you want a heavyweight acquisition finance lawyer on your side?
Were I, say, Chris Bown trying to build up private equity at Freshfields Bruckhaus Deringer or Graham White at Linklaters, I'd be flogging my finance practice to Macfarlanes' bigger clients (although it's fair to say that, while this might be an ace for White, Bown would have a harder job selling Freshfields' inferior banking capability).
To be fair to Macfarlanes, some of its clients have said they think the firm's service on finance is creditable, if a little stretched. But it's a question of where the firm wants to go in a rapidly changing market.
At the bottom end of the private equity sector, Macfarlanes will always lose out on price to the likes of Wragge & Co and DLA. At the top end of the middle band, Macfarlanes' natural home, the firm has a corporate offering that can easily compete with the sales pitches of Clifford Chance, Linklaters and Lovells, but it looks increasingly flat-footed on finance.
Although the firm's finance practice is quietly rated, there is nobody with the same standing of, say, Mark Vickers at Ashursts or Mark Stewart at Clifford Chance.
Now, Macfarlanes partners aren't exactly stupid. The firm has one of the most respected brands in the City and average profits per equity partner of £773,000, making it the UK's second most profitable firm in this year's The Lawyer 100 survey, so it must be doing something right.
In fact, it's a poorly kept secret that Macfarlanes has been trying to bolster its finance practice for a couple of years. At this stage, the firm's managing partner Robert Sutton ought to pull his finger out and nail down a big lateral hire before it's too late. After all, even tiny private equity boutique Dickson Minto can offer a credible finance capacity, which is provided by Michael Barron.
Macfarlanes has minimal experience with big lateral hires. One of the firm's great strengths is its strong partnership culture, but the flip side is that lawyers who didn't join as trainees feel like they've walked into a scene from The League of Gentlemen, complete with lawyers mumbling "this is a local law firm, for local lawyers".
A talented, high-profile lateral hire could no doubt get around this, but those sort of acquisition finance lawyers don't exactly grow on trees, and Macfarlanes isn't the only firm in the market. There's plenty of competition from the likes of Simpson Thacher & Bartlett, which poached Euan Gorrie from Allen & Overy earlier this year.
Sutton could do a lot worse than call Geoffrey Green at Ashursts and ask him how he managed to get a rated finance practice.
A key building block was Vickers, who was recruited from DLA in 1999, and the national firms might be a good place for Sutton to look.
However, the best pickings are gone and Sutton's priority must surely be to look around the City - maybe for a disaffected rising star from Clifford Chance or Linklaters.
Prospective candidates must have a track record with the banks as well as borrowers, because lender work is becoming pretty lucrative on private equity deals. Just ask Ashursts, which turned down a corporate role on Schneider Legrand's disposal to advise the Royal Bank of Scotland, which financed KKR's bid.
Getting the right person isn't an impossible task - after all, Macfarlanes has many charms. But Macfarlanes partners, each making an average of £773,000 a year, must be convinced of the need to move.
Sutton could just remind them that Stephenson Harwood was once a top City law firm. To stand still is to die.