Corporate to the four

The orange boxes were out in force at Freshfields Bruckhaus Deringer last weekend (17 September). The London corporate team had completed the review that departmental managing partner Tim Jones hopes will win it a raft of new clients. It was time to get moving. The seating changes were booked, the lawyers were packed and everyone was heading for their new homes at Whitefriars.

The relocation is part of what Jones described last week in The Lawyer as “a root and branch” restructuring of the London corporate group. If it is to pour some much-needed Baby Bio on a four-year period of practically zero growth in corporate, then Freshfields will hope this goes deeper than simply changing the scenery.

Taking the blinkers off
It was a rare admission by a top corporate partner when the charismatic and pugnacious Jones told The Lawyer last week that “the corporate department needed shaking up”. Group heads do not generally go on record effectively saying that their team has failed.

Inevitably this was a precursor to Jones outlining the steps he and his team were taking to put the situation right – a major restructuring of the London corporate group. But as Allen & Overy (A&O) corporate partner Mark Wippell, whose group performed a similar exercise several years ago, puts it: “There’s a great danger of just rearranging the deckchairs.”

Now for some context. This is Freshfields we are talking about – by anyone’s standards one of the top corporate practices in the City. So what went so wrong?
“There was a mindset that formed in the late 1990s when work was flowing in,” says Jones. “There was a tendency to think that would always be the way. The idea of the review was to examine the sort of work we want to do in the future and who for.”

Or, to put it another way, Freshfields’ London corporate practice had been all but stagnant and needed kicking into shape. The four-year period of flat revenue was described in an internal memo seen by The Lawyer as “steady”, spin that would even impress Shane Warne. “The immediate aftermath of global events in 2001 saw a significant downturn in corporate activity,” the memo continued. “Our competitive landscape changed with the expansion of US firms and renewed competition from some UK firms outside the magic circle. Over the last few years we have been operating in a buyer’s market that has seen a push for aggressive pricing by increasingly demanding buyers of our services. Four years on our market is definitely different but the outlook is healthier… this means new opportunities for us – if we are flexible and nimble enough to capture them.”

Closer to home, the partners have also recognised that their own global ambitions may have hindered the progress of the corporate team. “So much energy went into the merger; too much energy for too long,” says one.

Jones and his core team concluded after several months of navel gazing that the way to generate the necessary flexibility and agility was to reorganise the London corporate team along four sector lines, each with its own partner chair. Enter the orange boxes.

Fledgling or fudge?
Jones himself, the instigator of the shake-up, has become chair of Group D, which focuses on technology, media and telecoms (TMT), leisure, pharmaceuticals and the growing Indian market. Another of the groups, B (Freshfields has gone wild and named the others A and C), is private equity, chaired by Edward Braham (rivals have long carped that private equity was “a bit infra dig” at Freshfields, now they have evidence that it does indeed put out the B team). The other chairs are Will Lawes (financial institutions) and Mark Rawlinson (a lengthy list, including energy and natural resources, logistics and consumer products).

The idea is, according to the co-head of Freshfields’ firmwide private equity group Chris Bown, “blindingly obvious” and offers “more of what the client wants by reorganising on sector lines”.

Which begs the question: if it is blindingly obvious, why has it taken until now to implement?
“Things take a long time,” offers Bown. “Time to realise a change is needed.” Bown adds that the legal market is changing in relation to client requirements. “The advice you provide has to have the magic circle badge of excellence, but it also has to be more tailored to the demands of the corporate client,” he continues. “I don’t expect the work handled by the firm to transform dramatically – there’ll be a similar mix of advisory and transactional. What’s changing is the approach to clients.”

It is still curious that one of the City’s top-rated corporate practices took four years to realise something was up and that it needed to change. So once again, why has it taken so long to spot that organising corporate along sector lines, rather than Freshfields’ previous ad hoc collection of seven groups, might bring benefits?
“We’ve always been about doing what the client wants, but we’re trying to raise it up a level now, with more depth and a higher concentration of sector expertise,” argues Braham. “Life’s always about continuous improvement and that’s what this is.”

It may also be a sign that, in Jones, Freshfields has got the kind of corporate head who is not afraid to shake things up a bit, something for which the firm as a whole is less noted. Freshfields has the largest group of equity partners of any of the major firms – 506 at 2005’s year-end compared with 335 at A&O, 345 at Linklaters and 381 at Clifford Chance. “All equity partners regard themselves as equal, which means it’s a harder place to manage,” says a corporate partner close to Freshfields. “Plus, the culture of Freshfields is its clubby, consensus style. It can be exasperating.”

Keeping the good bits
Club or no club, Freshfields has some weighty characters that Jones and his cronies will be keen to keep onside. They include TMT head Simon Marchant, who created his group from scratch (“the most self-determining of the lot”, according to one insider), and Bown himself, not known as a shrinking violet or one overburdened with softer skills. Is the restructuring of corporate a threat to their power?
“We’re simply trying to group together the partners with an interest in these sectors to support the firmwide groups,” says Rawlinson. “To be honest, it’s something we haven’t done that well in corporate. But the global sector groups are becoming much more important across the firm and we’re absolutely not trying to disrupt existing client relationships. Definitely not. This change is aimed at new clients.”

Jones echoes Rawlinson’s point that this is not about examining Freshfields’ current client base with a view to axing clients. “It’s about the future,” he confirms.

For his part, Bown does not appear too worried. “The reorganisation won’t change immediately anyone’s relationship responsibilities,” he says. “It simply pulls into geographic proximity the partners that handle private equity in London. My role as co-head [with Nils Koffka] of the firmwide private equity sector group doesn’t change.”

“To be absolutely clear,” adds Rawlinson, “I’m not going to be in charge of energy and transport and so on. I’m chairing a team that has these sectors within it. Therefore there’s no conflict with the sector group leaders.”

Attracting clients
Instead of avoiding any internal conflict, Jones’s emphasis from now on will be on widening Freshfields’ corporate client base and making his team less dependent on the big-ticket deal. The genesis of Freshfields’ corporate practice was in the investment banks, which inevitably led to a deals mentality among the partnership. In contrast, the transactional practices at Linklaters and Slaughter and May, to take two obvious examples, are based on a much larger indigenous corporate client base.

“Freshfields’ differentiator has always been that it’s a transactional firm, which means, unlike some other firms, that it hasn’t had the massive corporate client base bringing in the steady flow of general business – an annuity if you like,” admits Jones. “That means work levels can often be in flux – we’re subject to the deals market.”

Jones and Rawlinson are now targeting the FTSE100 for new clients that can feed the group a regular flow of general instructions. “We’ve always understood that our corporate client base wasn’t as substantial as others’,” admits Bown. “We’ve recognised that and now have the opportunity to do something about it.”

It is going to be a while before there is any hard evidence of whether the new structure has produced results or not, but the revenue for the first quarter of the current financial year was up 18 per cent on 2004-05. “We’ve arrested the decline of the revenue, but we haven’t pushed the business forward over the last four years,” admits Lawes. “We needed to create more energy and we hope this is the way we’ll do it.”

This weekend (24 September) the energy will be aimed primarily at filling orange boxes, out once again as the corporate group completes shuffling its furniture. Next week it will be time to see if it has made any difference.

Private equity

Private equity will be a key pointer to the success of Freshfields Bruckhaus Deringer and Tim Jones’s sector-focused strategy. According to one Freshfields client: “The issue for me is that they do not have a department in London – they have corporate finance guys who also do private equity.” Edward Braham especially will be looking to expand on the core base of 21 clients, which includes Apax Partners, Cinven and Terra Firma.

“It’s certainly true that in the 1990s we didn’t do a lot of private equity,” says Braham. “It was a deliberate decision. But around 2000 we started to take it very seriously indeed. We believe that by 2003 we were outperforming Ashurst in both value and volume.”

Last week Freshfields announced Braham’s involvement in Kappa Packaging’s merger with Jefferson Smurfit Group, advising (along with David Higgins) Cinven and CVC Capital Partners. Other private equity deals handled by Freshfields in the last year include:l Apax Partners’ €1.5bn (£1.01bn) acquisition of Travelex. l Baroness Retail’s (CVC Capital Partners, Texas Pacific Group and Merrill Lynch) successful contested consortium bid for Debenhams and the subsequent £2.05bn refinancing of all of its third-party and shareholder debt. l Cinven on various transactions, including the €4.5bn (£3.04bn) buyout of travel bookings company Amadeus and the €2.4bn (£1.62bn) leveraged recapitalisation of Eutelsat. l Goldman Sachs Principal Investment Area on the €1.3bn (£880m) acquisition of cable manufacturing business Pirelli Cavi from Pirelli. l Terra Firma on the £453m acquisition of UK water and gas utility East Surrey Holdings. l Texas Pacific Group on the £697m take private of British Vita, the UK chemicals group.


Germany, with Bruckhaus Deringer’s stellar corporate client list, is a different story from London. While the spread of the practice over six offices creates alternative challenges from the UK. But the fact that the two corporate centres of gravity at Freshfields Bruckhaus Deringer are reviewing their departments independently, with the probability that they will reach different conclusions, has mystified some.

“It’s true that it does depend on the local market, with the larger offices such as London and New York able to offer a higher degree of sophistication,” says one magic circle partner. “But if you ask if it’s curious that Freshfields, which trumpets the fact that it has the same number of partners in Germany as in London, has not made this change in Germany, the answer is yes.”

The German corporate practice’s review began in April 2005. Last Wednesday (14 September) the first round of meetings were held, during which groups of partners reported back on business lines, support areas and regional differences. The review is expected to conclude by the end of the year.