After a disastrous 2008, the ’Cravath Way’ has brought about a return to form. By Matt Byrne
One of the more surprising financial results this year was Weil Gotshal & Manges’, which despite its highest of high-profile roles on a succession of bankruptcies and restructurings posted a flat revenue for 2009.
But there is another firm that also managed to raise a few eyebrows with its results. In 2008 New York blue-blood Cravath Swaine & Moore posted one of the biggest falls in total revenue and average profit per equity partner (PEP), with the metrics down 13 and 24 per cent respectively.
Last year, however, Cravath bounced back, with sources suggesting revenue and PEP were both up to the tune of 7 and 8 per cent respectively to $569m (£376m) and $2.7m.
In a market where premium M&A all but disappeared and Cravath was conspicuous by its absence on many of the largest disputes and investigations, the firm’s partial return to form came as a surprise to many of its US rivals.
Recently, however, the firm’s presiding partner Evan Chesler gave The Lawyer a few clues as to the reasons for Cravath’s surprisingly solid year.
Part of the reason, he says, is that his firm is not as heavily wedded to the financial services industry as some of its rivals. True, Cravath has some deep-seated relationships with a number of financial institutions, notably Credit Suisse and JPMorgan Chase, as well as, to a lesser extent, Goldman Sachs.
But financial services is not the firm’s bedrock. According to Chesler, its success was primarily due to its “critical mass” of industrial corporate clients.
“In difficult times industrial clients of the calibre of ours have access to credit when others may not,” says Chesler. “And that stable of clients is doing deals.”
IBM and Johnson & Johnson are two of Cravath’s biggest clients and both are serial acquirers and sellers. This activity might not get you high up the deals lists, but it is still quality work. And if Cravath’s results are anything to go by, profitable too.
Another area that seemed to work well for Cravath during this downturn is one that passed the firm by entirely in the last one – namely restructuring.
Cravath almost never makes lateral hires, but it addressed this hole in its offering in the summer of 2007 when it brought in bankruptcy partner Rich Levin from Skadden to launch a practice.
“We did it at a time when the Dow was up at around 13,000 or 14,000 – it seems like a distant memory now,” says Chesler. ”People were asking us, ’What
do you know that we don’t?’ The truth is, nothing – we didn’t have a crystal ball. But equally we knew that nothing lasts for ever.”
This time the firm was ready to pick up at least some of the restructuring work around. For example, while it might not be Lehman Brothers, the firm represented New York City Off Track Betting on its municipal bankruptcy case under Chapter 9 of the Bankruptcy Code – the first-ever such case to be filed in the city.
Cravath also acted as counsel to the independent directors of General Motors on the auto company’s Chapter 11 filing and the Section 363 sale of its principal operating assets. Levin featured on both of those matters.
Elsewhere, partners Francis Barron and Paul Zumbro led for Goldman Sachs as the pre-petition secured creditor and debtor-in-possession (DIP) facility lender to Lyondell Chemical Company and various affiliated debtors on one of the largest DIP financing packages in history ($8.02bn).
This is an area Cravath has sought to beef up during the downturn, although, true to its generalist approach (which stems from its model of training its lawyers in numerous areas of law, the famous ’Cravath Way’), this has translated into more of a change of emphasis than a wholescale retooling of lawyers or, God forbid, a hiring spree.
“During the downturn we moved some lawyers around and shifted some capabilities,” reveals Chesler. “For example, we moved one partner [and the associated team] from banking into restructuring, others from securities into M&A and some into corporate governance and our board advisory practice. I know that seems like trimming the sails, but we’re a small firm.”
London was not immune to this changearound, although as Chesler points out, the moves in the City were less about the financial crisis and more about Cravath’s typical style of rotating partners. Former London head William ’Bud’ Rogers came back to New York after seven years, while partner David Mercado moved over to become Cravath’s senior partner in the City.
Mercado has not been hanging around since arriving in London. He was one of the partners (along with Philip Boeckman, David Mercado, George Stephanakis and Greg Shaw) who represented Citigroup Global Markets as financial adviser to Gazprom Neft on the acquisition of a stake in the UK-listed Sibir Energy.
Mercado also featured on a number of matters for Brazil-based meat and processed food company Sadia, including its merger with Perdigão (now known as BRF Brasil Foods), and Naspers on its $342m acquisition of 91 per cent of the share capital of Brazilian e-commerce group BuscaPé.com.
As well as Mercado, Cravath also sent general corporate and M&A specialist Alyssa Caples across the Atlantic and brought back Shaw, one of its senior securities partners. The thinking behind replacing a securities partner with an M&A specialist was driven partly by the tremendous amount of work Cravath has been involved in that relates to its best friends, including Slaughter and May and more specifically Bredin Prat. The fact that Caples is a fluent French speaker is thought to be proving particularly beneficial in that relationship.
“Our gut feeling is that London’s about a year behind New York in terms of the recovery of the financial markets,” adds Chesler. “Which is why, at this point in time, having an M&A person there is helpful because that’s precisely where the business has really been.”
As one might say, Way to go.