The Norton Rose quartet that had no strings attached

A&O’s raid on Norton Rose two years ago stunned the City. What’s happened since? By Catrin Griffiths

Norton Rose quartet that had no strings attached” />Finance team raids are a bit of a habit at Allen & Overy (A&O). Back in the 1980s, when partnership was for life, A&O hired a three-partner insolvency team from Camerons – Peter Totty, Gordon Stewart and Nick Segal. That raid set the foundations for A&O’s domination of the insolvency and workout market in the early 1990s recession.

Then in 1998, A&O took on a three-partner team from Wilde Sapte, establishing instant credibility in the asset finance market. But perhaps most spectacular was the looting of Norton Rose’s acquisition finance practice in January 2002, when four partners – Andrew Bamber, Robin Harvey, Tim Polglase and Clive Wells – resigned en masse for the magic circle firm.

What the Norton Rose quartet wanted was magic circle clout and more European coverage where it mattered. What A&O wanted was to gain competitive advantage over Clifford Chance and smaller challengers such as Ashurst, Linklaters and Shearman & Sterling. It saw massive opportunities in the Norton Rose partners’ connections with JPMorgan Chase, the Royal Bank of Scotland (RBS) and Fuji Bank.

So did it work? The four-partner team – supplemented by eight assistants who joined in subsequent months – certainly added greater capacity. But two years on, did the hires deliver a knockout blow to A&O’s competition?

The short answer is no. Linklaters and Ashurst are still credible contenders, while Clifford Chance has ditched at least some of its complacency within the leveraged buyout (LBO) market, although there is always an element of good fortune. “At the beginning of last summer we steadfastly backed all the wrong horses,” admits Polglase. “Then after Christmas it started to pick up again,” he adds.

The quartet’s move might have taken Norton Rose out of the market, but the number of private equity houses and banks chasing deals means that lenders still need a decent choice of firms.
Contrast this with the investment grade sector, where the barriers to entry – usually through client inertia – are extraordinarily high.
A&O’s only competitor is Clifford Chance, and that duopoly suits them both just fine. Making it in the investment grade market is about relationship management and history, not the roll of the dice.

However, investment grade lending is increasingly commoditised. There simply aren’t the jumbo financings around on which David Morley and others made their names in the mid-to late 1990s. So with big-ticket M&A at a standstill, it’s the leveraged finance groups – more often than not negotiating the debt agreements on private equity-led deals – which have been making the noise. On paper, this ought to mean that A&O’s timing in raiding Norton Rose was absolutely perfect. So what sort of run has the bulked-up A&O group had in the past two years?

On any analysis, the move has had benefits for A&O, and especially with two clients: JPMorgan Chase and RBS.

Much of this is down to Polglase, the most senior partner of the four laterals. Polglase’s strong technical edge gave Norton Rose intellectual gravitas in the leveraged market, and his clients were unshakeable; his arrival handed A&O an entry into the leveraged work for JPMorgan Chase. The investment grade relationship between A&O and JPMorgan Chase was relatively solid, while Euan Gorrie (now at Simpson Thacher & Bartlett) acted on the £1.1bn acquisition financing of Rank Hovis McDougall.

But JPMorgan Chase’s strong relationship with private equity house KKR meant that A&O was inevitably conflicted out of leveraged mandates because its partner Tony Keal has much of the KKR financing work sewn up.

So Polglase’s close relationship with the Chase side of the bank has been a plus for his new firm. When he was at Norton Rose, Polglase was one of Chase’s key outside counsel. He advised the bank on the £1.4bn financing on Zeneca Speciality Chemicals, and on the debt element of Hicks Muse’s contested leveraged bid for Hillsdown Holdings.

Since coming to A&O, Polglase has appeared for JPMorgan Chase on a number of Hicks Muse transactions. Last November, he did the £75m subordinated financing on the acquisition of Ambrosia – another deal in the Hillsdown series. That JPMorgan-Hicks Muse relationship brought A&O in on one of the chunkier acquisitions of last year, the £642m acquisition of Weetabix, on which his partner Robin Harvey also impressed. As an aside, there were striking similarities between the original Hillsdown deal and Weetabix. Not only were the players largely the same, but the acquisition was implemented through Polglase’s trademark scheme of arrangement.

Last Christmas, Polglase also found time to slot in the $285m (£153.8m) recapitalisation of the Stahl Group for JPMorgan Chase.

All four defectors had good RBS connections, thanks to Norton Rose’s longstanding institutional relationship with the bank. Given RBS’s dominance in the UK buyout market, the arrivals helped to shore up A&O’s market share with the bank. Until then, the RBS relationship was centred mainly through Jacqueline Evans, with Trevor Borthwick on the investment grade side. A&O partner Stephen Gillespie says: “We had contacts in RBS, but [the four] certainly helped us, no question.”

Polglase advised RBS on Advent International’s £250m secondary buyout of Aviagen Group in June last year. Wells, who now works closely with Evans in the firm’s Canary Wharf offices, advised RBS and BarCap last month in connection with the £270m facility on
the Halfords initial public offering.

Meanwhile, Bamber – the maverick of the quartet who, since arriving at A&O, has also been pitched into various restructurings such as Drax – has occasionally used his contacts in the corporate banking team at RBS to help snag the odd lower mid-market deal. The £149m financing of Yates (run by BarCap and RBS) this month is a classic example.

The success of any LBO group is entirely linked to the auction process. If a key banking client has had a fantastic run, then you’re laughing. If your client keeps getting pipped, there’s not much you can do about it, apart from hope that some of your fees get recovered. A&O might have increased its capacity for doing deals, but it still needs that extra dollop of luck.