Clients prefer to deal with established, tight-knit teams, says Gavriel Hollander
If the eye-watering figures being bandied about the market are to be believed, last June’s moves to Kirkland & Ellis by Ashurst private equity partners Gavin Gordon and David Arnold were two of the more lucrative legal transfers of the year.
And it is common knowledge that another high-profile pair of private equity partners, in the form of Linklaters’ Ian Bagshaw and Richard Youle, left an offer to join another US firm on the table towards the end of the year, electing instead to continue building the magic circle firm’s own practice.
While there is nothing new in successful partners being tempted by deals elsewhere, what is notable, in the private equity space, is that, like Noah’s animals, partners tend to travel in twos.
Delving further back through the past decade reveals that the idea of a two-for-one lateral move is something of a tradition. Kirkland itself first double-dipped into the UK private equity market when it carried off the previous guardians of the Linklaters practice in the form of Graham White and Raymond McKeeve, the latter having moved on to Berwin Leighton Paisner (BLP) via a spell as an investment professional with property mogul Robert Tchenguiz.
Weil Gotshal & Manges is another old hand at this tactic, trying it first in 2004 when current Clifford Chance corporate chief Matthew Layton and fellow private equity partner James Baird were on the verge of signing.
The firm got its men two years later when it swept into Hogan Lovells legacy firm Lovells and came away with the prize of star partner Marco Compagnoni along with then assistant Jonathan Wood, who was promptly made a partner himself.
But the question persists as to why, more than in any other sector, private equity partners operate in pairs.
A look at the nature of the clients is informative. Private equity houses possess two qualities that make them different from their peers in the mainstream corporate world: they are smaller entities and their business model depends on the maintenance of a solid pipeline of transactions. This means they have closer day-to-day relationships with their legal counsel and, when a favourite partner finds a new home, clients often follow.
Compagnoni and Wood took much of the Advent work they had built up at Lovells with them to their new firm. Meanwhile, CVC Capital Partners, a house that still tends to spread work around a select group of trusted firms, added Kirkland to that roster after White’s switch.
More recently, Clifford Chance rainmaker Adam Signy’s move to Simpson Thacher & Bartlett in 2009 was followed by a juicy instruction from Kohlberg Kravis Roberts (KKR) when the grandaddy of buyout houses bought Pets at Home for £995m in one of last year’s biggest private equity deals.
“There’s a particular thing with private equity,” says one experienced partner at a leading City private equity-focused firm. “A lot of the deals they’re going to be looking to do are big and they need someone they can trust.
“In normal corporate activity you often deal with people who don’t do much M&A, so if you get things wrong they might not spot it. For private equity people, their lives are about doing deals, so you can’t call in just anyone; it has to be someone who understands how private equity works.”
A private equity partner at a US firm agrees that buyout houses procure their services in a different way from big corporates.
“They’re sophisticated users of legal services,” explains the partner. “The firm name might be important, but they don’t phone up Ashurst, Clifford Chance or Kirkland or whoever it might be, they want partner X or Y.”
Corporate law is a relationship-driven business, but private equity in particular is an area where individuals carry as much weight, if not more, than firm names. And with the big houses baulking at the idea of an unknown junior partner as number two on the deal team, it is no surprise that firms looking to build their practices look for ready-made partnerships.
“Private equity relationships are perceived as being more portable, and they probably are,” adds another City private equity partner. “Most houses have two firms that they use and the relationships are focused on one or two partners max. They don’t get ingrained [at firms] in the same way [as corporates].”
The way to move the relationship is therefore to grab both partners at the same time, even if it requires a bit of an outlay – something that explains why it is the Americans who tend to make the big-money offers.
However, Bridgepoint general counsel Charles Barter, who has seen the market from both sides, having set up the private equity group at Travers Smith back in 1996, thinks something other than easy portability has driven the trend.
“Most of the times when more than one partner’s moved, it’s been to a US firm or a firm that doesn’t have an existing private equity offering in London,” suggests Barter. “It’s much easier to build if there’s more than one person [from the start].”
Admittedly, Gordon and Arnold may not be able to wrestle huge swathes of Ashurst’s client base, especially with the likes of Apax Partners still embedded with senior partner Charlie Geffen. The firm also still boasts a healthy roster of private equity specialists in the shape of corporate chiefs Stephen Lloyd and Simon Beddow, along with David Carter and Bruce Hanton.
This is a marked contrast from, for example, Campagnoni’s exit, which left a hole in Lovells’ private equity practice that it has never adequately filled.
What matters as much as who leaves is who is left behind. When McKeeve and White left Linklaters the quick promotion of Youle to partnership, followed by the recruitment of Bagshaw from Clifford Chance, meant it could hang on to many of its most prized clients such as, notably, Terra Firma.
While the behemoths of the corporate world interact across the board with their go-to firms, private equity is a more nimble creature. As such, any firm that can convince a ready-made pair of advisers to jump ship together has a good chance of seeing its investment come good.
It is a gamble that the US firms throwing their dollars around the City have been prepared to make in the past and will undoubtedly continue to make in the future.