Kirkland & Ellis is the top riser in The Lawyer’s list of international firms in London, and has the cash needed for a hiring spree. Is its recruitment of a high-yield partner a sign of things to come?
Here is an interesting comment about Kirkland & Ellis from a City-based finance partner at a rival US firm: “No bank in London will ever instruct Kirkland – they don’t have the pedigree.”
That is fighting talk where Kirkland comes from. Last week’s news, revealed exclusively by TheLawyer.com (13 April), that the firm has hired Shearman & Sterling high-yield partner Ward McKimm, is quite a response. And in a broader sense, so is the firm’s position as the biggest riser on total revenue in The Lawyer’s table of the top international firms in London (see Special Report, page 19).
Kirkland’s 22.5 per cent jump from $80.8m (£49.7m) to $98.9m (an estimated figure based on multiplying the firm’s global revenue per lawyer figure by the total number of qualified lawyers in the office) underlines the strategic strides the firm has made over the past few years in the City.
McKimm’s hire is just the latest evidence of the US firm’s City outpost having hit a purple patch.
However, Kirkland’s London managing partner Jim Learner wants to put the market straight about McKimm’s arrival.
“We have no great desire to represent banks in leveraged finance transactions and we don’t plan to change that strategy,” Learner insists. “We represent many financial institutions on deals, such as investment banks as underwriter’s counsel in securities offerings. Do we want to represent a big bank as senior lender on a deal? Probably not.”
In other words, McKimm’s arrival does not signal a sea-change at the Chicago-headquartered firm.
“It’s not an explicit move into acting for banks,” confirms Stephen Gillespie, the senior partner in Kirkland’s European finance group. “Historically we’ve not acted for banks, we’ve always been on the investor or sponsor side of the table. Now, provided there are no conflicts, we’re able to act on the underwriter side as easily as the issuer. But the primary point about Ward’s hire is to capture high-yield work that our sponsor clients are generating.”
To that end, Kirkland is moving high-yield partner William Burke – currently working on Belgian company Ideal Standard’s e250m (£222m) bond issue – from Chicago at the same time.
McKimm’s arrival is not only illuminating because of what it says about Kirkland’s London practice, which is focused on the firm’s traditional core areas of private equity along with restructuring, litigation and, to a lesser extent in London, IP. It also reinforces the current impression of certain US firms as the City’s most aggressive lateral hirers.
As our lead story this week confirms, ranks of deep-pocketed US firms are currently on a hiring spree in London. And Kirkland, which posted the highest increase in London revenue of all of this year’s top 30 international firms, coupled with a record average profit per partner figure of $3m, has deeper pockets than most.
Indeed, The Lawyer’s $98.9m estimate may even be understating the true position.
“Revenue per lawyer in London is probably higher than the firmwide average [$1.178m], or at least as high,” says one former Kirkland partner. “It’s all high-end in London, and they’re billing in sterling so there’s a currency exchange benefit too.”
What is certain is that Kirkland’s healthy financial position has allowed it to swoop for lawyers such as competition partner ShaunGoodman from the dissolving Howrey, as well as private equity partners Gavin Gordon and David Arnold from Ashurst for guaranteed annual pay packets that are understood to be £1.4m and £900,000 respectively. (Sources say that Gordon’s hefty remuneration pales in comparison with that paid to Linklaters former global head of private equity Graham White who joined in 2006. White is said to have been on £3.5m a year, while SJ Berwin funds specialist Mark Mifsud, who joined a year later, is thought to have been offered £2m.)
But Learner denies that Kirkland’s strong financial position will result in a big hiring spree.
“We’ve been seeing some opportunities and filling-in some areas,” Learner says. “We’ve never operated by growth projections. Business comes in the door and we make sure we have enough people to satisfy our clients’ needs.”
The exceptions to this rule could be associates. Kirkland’s London leverage is low at around 1:1 across the office.
“We’re probably a little lower than we’d want to be – a little light on associates – and we’re looking to hire more people,” says Learner. “But it doesn’t trouble us.”
And leverage does vary from group to group. “In debt finance we’ve roughly doubled the associate headcount in the past couple of years to 11,” says Gillespie, who was a lateral from Allen & Overy (A&O) in 2006. “With four partners, that’s a leverage closer to 1:2.”
One London recruiter points to the success of some Kirkland teams, including Mark Mifsud’s funds practice, as part of the reason leverage is so low.
“They made almost everyone up in funds,” claims the recruiter. “They also have a lot of non-share partners, and quite a few are six-to-seven years qualified, so really many of these so-called partners are just glorified senior associates. But the thing is, if it works, so what?”
The relatively high number of non-equity partners does not appear to have discouraged clients from using Kirkland in the past 12 months.
Roles for Bain Capital and Advent International on the $3bn acquisition of payment processor WorldPay from RBS, for Apollo on betting group Gala Coral’s debt buyout and on the restructuring of European Directories in particular have helped keep the revenue rolling in.
Elsewhere, Chris Colbridge’s international arbitration and litigation practice has been a growth area.
“It’s now a substantial contributor to revenue,” confirms Gillespie.
So the firm has grown significantly in recent years, but what may surprise many of its rivals is the extent to which Kirkland has built what is effectively a UK firm in the City.
“Over 90 per cent of our lawyers are English-qualified,” says restructuring co-head Kon Asimacopoulos. “It’s not the stereotypical London outpost of a US firm.”
London head Learner is more than happy to elucidate.
“In London we operate, along with Munich, on a pan-European basis,” Learner says. “We don’t really see it as a UK practice. There are a lot of UK-qualified lawyers but that’s because the evolution of the office is to hire people in the local market. You want a local relationship and presence. Our work in London is mostly for clients in Europe, and the same pattern of hiring is true of Asia and the US.”
Kirkland’s opportunistic lateral hiring – another star local hire is The Lawyer Hot 100 alumnus Neel Sachdev, who joined from Freshfields Bruckhaus Deringer in 2003 – is unlikely to see it grow into one of London’s juggernaut US outposts. But in the past five years the significant growth in the proportion of UK lawyers in its London office has, its partners believe, changed who it sees as its competition.
“People say it must be Weil [Gotshal] or Simpson [Thacher], but we see our competition as Clifford Chance, Linklaters, A&O as well as Weil, Simpson and others,” says Gillespie. “The difference between us and the magic circle is that there are more things we don’t do than them.”
In other words, Kirkland prefers to focus on its core strands. It also, in the words of Asimacopoulos, “gives real support to its partners and associates”, referring to the faith the firm showed in him and fellow restructuring co-head Partha Kar when they took over the running of the group following Lyndon Norley’s departure to Greenberg Traurig Maher in November 2009.
“They could have gone out into the market to get a grey-haired restructuring person but no, they said, ’We’ve got faith in you guys – go for it’,” says Asimacopoulos.
And, among the US firms in London, Kirkland is one that is going for it right now.