Prospect of law firm floats edges closer;
All change as Childs takes the reins at Clifford Chance;
Dewey tries to keep remaining London partners on-side as BLP snares duo;
A&O projects partners’ equity points whittled down as US dollar remains weak
Law firm floats rise up the agenda
The news that a leading investment banker had canvassed opinion from the entire top 100 UK law firms about floating their firms and received enthusiastic responses from a significant number of managing partners highlighted the current appetite for change in the legal market.
As reported by the The Lawyer (6 February), former Panmure Gordon banker Julian Hirst wrote to every managing partner in The Lawyer UK 100 Annual Report 2005 last October to gauge their appetite for a potential IPO or other form of external capital. Twenty managing partners expressed an interest in a meeting with the banker.
Legislation still needs to be passed before the momentous event of a law firm IPO can come to pass, but it is likely that the Government’s white paper on the reform of the legal market will go through within the year. If it does, then the next 12 months may well see the first UK law firm going public.
But as one UK partner put it after the story’s publication in The Lawyer: “Does a client want lawyers who are managed by external shareholders?”
It is a fair point, but it is still far from clear whether many lawyers want it either. As Hirst told The Lawyer: “The key issue that firms need to grapple with is a shift from a culture where all of the profits are paid out at the end of each year to one where money is invested in building the business and creating long-term value through share price appreciation.”
That would be a radical shift which would bring with it a host of new pressures relating to running a law firm. Added to that is the increased transparency that a listing on AIM or the London Stock Exchange would necessitate. As the managing partner of one top UK firm put it: “You’d have outside people crawling all over you, checking what colour your toilet paper was. If you have any warts, they’ll find them.”
It is likely that, for a handful of firms, the idea of attracting outside capital is still attractive, even if it does mean opening up the books. But instead of looking at which firms might want to float or sell a chunk of the equity, it is worth considering which kinds of businesses would want to invest in a law firm.
The answer would certainly include investment banks – and they are only going to be looking for the best talent available. The likelihood is that the bankers will want to cherrypick the best bits and leave the rest standing.
As Gillian Switalski, F&C Asset Management director of legal services, said: “They [private practice lawyers] really don’t have any idea what’s going to hit them. The banks are going to come in and snap up all their best talent because they can afford to. If they think that just because the market deregulates there’s going to be a queue of banks looking to flood firms with money, they’re in for a big surprise.”
Childs confirmed as new CC head
The top management at the world’s largest law firm, Clifford Chance, was put on notice of change in January when David Childs was effectively confirmed as its new managing partner (The Lawyer, 6 February).
The move to install Childs, currently chief operating officer, as the new top lawyer at Clifford Chance had been widely expected; indeed, The Lawyer had tipped him in the first issue of 2006 (9 January). The only other serious contender for the post, Paris managing partner Yves Wehrli, dropped out of the race on 2 February.
Childs is credited with chopping some £40m in costs from Clifford Chance and helping to boost average profit per partner to well in excess of £800,000.
Clifford Chance partners will be hoping that upward trajectory continues once Childs is officially the boss.
Dewey UK hedges its bets
The proportion of local lawyers to Americans is an accepted sign of the maturity of a US firm’s London office. So, when 50 per cent of Dewey Ballantine’s London operation jumped ship for Berwin Leighton Paisner (BLP) (The Lawyer, 16 January) the alarm bells began to ring within Dewey’s management.
Mark Saunders and Adam Dann, both corporate partners focused on the energy industry, left Dewey on Friday 13 January. Saunders now heads BLP’s energy and natural resources team, while both lawyers have become part of the firm’s rapidly growing international projects team headed by Jonathan Simpson. Simpson joined BLP from Dewey last October.
Their exits left Dewey’s London office with just two English partners, tax specialist David Blumenthal and the projects-focused Jane Da Vall – a fact acknowledged by London managing partner Fred Gander when he said recruiting UK-qualified partners was now “a priority”. In a direct attempt to attract more UK laterals and persuade those remaining to stick around, especially in the face of a weak dollar, Dewey has introduced a hedging facility for UK partners. In essence, if the dollar falls below a certain level, extra money is made available.
The measures were introduced late last year, and unfortunately for Dewey they were not enough to keep Saunders and Dann on side. For that pair, the attraction of building a major projects team at BLP and working once more with their former partner and friend Simpson proved too strong.
Sources suggest that the support both partners will get at BLP was also a factor in their exits, with Dewey too thin on the ground to be full service. The latter is to some extent borne out by Gander’s comments that, on the UK side, Dewey was “rather thin”, although he did claim that in the past year the office had grown by 20 per cent.
Whether the hedging facility is enough to help Dewey hang on to Blumenthal and Da Vall, and attract new laterals to replace Saunders and Dann, remains to be seen.
A&O slashes projects partners’ equity
The weak dollar was ostensibly the reason for another major management decision that came to light over the past month (23 January), this time at Allen & Overy (A&O).
The magic circle firm’s decision to chop the number of equity points awarded to its London-based project finance partners was blamed by the management on the weak dollar and increasing competition in the global projects arena.
As projects head Graham Vinter put it: “The group works in pounds, but mostly bills in dollars. A year ago we decided that, if we weren’t careful, it could be damaging in the long term.”
Consequently the decision was taken to cut points to partners, effective from 1 May this year.
Coming up: Regional: 20 Feb
The bar: 27 Feb
In-house: 6 March
Management: 13 March