With the one-stop shop increasingly de rigueur and cross-border alliances looking like yesterday’s model, is it time for Willkie Farr and Dickson Minto to consign their
tie-up to the scrapheap?
Are alliances really worth the bother? More specifically, is the three-year association between Willkie Farr & Gallagher and Dickson Minto worth continuing with?
First, some context. If ever there was a period in the global legal market when the one-firm approach is looking more effective than that of best friends, it is now.
The messy end of Herbert Smith’s Continental alliance is the most visible sign, although at the tail end of last year Pinsent Masons also called time on its deal with Salans.
The collapse of both relationships suggests that many clients are becoming increasingly comfortable with instructing just one firm across numerous geographies. Add to that the fact that there has never been more consolidation, more merger activity and more of a rush to become big than there is today.
Take the super-acquisitive Norton Rose. Twenty years ago it was the lead ‘partner’ in the ill-fated M5 group of firms. Soon after that fizzled out in 1998 its other deals, with Singapore-based alliance partner Lee & Lee and Johnson Stokes & Master in Hong Kong, also fell apart.
“Ask any litigator,” says Norton Rose chief executive Peter Martyr. “The best client to have is a joint venture because you know it’s going to go wrong.”
Which brings us to the private equity-focused alliance between Willkie and Dickson Minto. When the two firms began it in June 2008, both were led by formidable lawyers who had been in their respective roles for years.
Willkie, long seen as a powerhouse in US circles in areas such as private equity, litigation and restructuring, was led by Jack Nusbaum, one of the world’s longest-serving law firm leaders who had helmed the US firm for 23 years. Nusbaum’s Scottish counterpart was firm founder Alastair Dickson, the legendary former Dundas & Wilson private equity partner, who remains in situ as senior partner.
“Alastair’s probably the best lawyer I’ve ever worked with,” said one former Dickson Minto lawyer. “It’s very much his firm.”
In January 2010 Nusbaum stepped down in favour of two Willkie partners, Tom Cerabino and Steve Gartner, both of whom stressed the continuity of the transition at the time.
Until last year nothing much changed. Willkie has long had substantial offices in Paris and Frankfurt and indeed has successfully carved out one of the leading domestic private equity and M&A practices in those two countries. In 2011 Willkie advised on a string of major deals on the Continent including the $3bn (£1.95bn) acquisition of engineering business SPIE and Novartis’ acquisition of a stake in Alcon for $12.1bn.
“Part of the problem for Willkie is that over here it’s known as a domestic private equity practice in France and Germany particularly,” says one rival partner. “It’s unususal in that it’s an elite US firm that went to Continental Europe to build a network of offices rather than starting in London. So it now has a good pan-European network but virtually nothing in the City.”
Willkie’s London office, headed by corporate partner Jon Lyman, is chronically underweight. It represents a glaring hole in the firm’s European coverage. Indeed, the lack of a serious London office was the catalyst for the Dickson Minto alliance.
The London office, set up inititally to service regular US clients doing business in the UK, was launched with three lawyers in February 1988. More than 20 years on, it still has only three lawyers.
Last May, however, Willkie made what may be the first of several moves to beef up in the City. The firm announced that it had hired Peter Burrell, a Herbert Smith white-collar fraud partner, who is scheduled finally to start at Willkie this March once his lengthy gardening leave period finally ends. (Enforcing the notice period has hardly endeared Herbert Smith to Willkie and indeed might make it more problematic for the former now that it is on a recruitment campaign of its own.)
Burrell’s hire reflects the first shift in strategy at Willkie since Cerabino and Gartner took over from Nusbaum. True, his hire makes sense in that it helps the firm match up its resources in the UK with the stellar capacity it has in Washington DC and New York, in particular with the team headed by partner Martin Weinstein. Willkie is certainly likely to hire more lawyers in Burrell’s area, as well as looking to add on an international arbitration capability in London. His hire will also have no direct impact on the Dickson Minto alliance as Burrell’s area of compliance is not something offered by the Scottish firm.
But the hire of the US firm’s first English law solicitor, a disputes specialist, does highlight the dearth of transactional capacity Willkie has in the City. Increasingly that looks like an anamoly in the current market.
Willkie is now thought to be having exploratory scouting missions in the UK market for talent, primarily in the areas of restructuring, asset management and fund formation. For example, it is believed to have held talks with the Orrick Herrington & Sutcliffe restructuring team of Mark Fennessy and Hazel Miller, who ultimately plumped for Dewey & LeBoeuf. Certainly strengthening its London office in the area of restructuring would make sense. Willkie has one of the strongest restructuring franchises in the US, with matters last year including advising Fiat on Chrysler’s refinancing.
In contrast Dickson Minto does not have the weight of numbers or, frankly, the reputation to match Willkie’s US restructuring brand in the City, making this an area potentially ripe for growth for the US firm.
It is hard to see how a recruitment campaign by Willkie now does not make sense, despite what the firm says officially. Certainly there is no shortage of US firms with fat cheque books currently foraging for talent in the City.
Proskauer Rose, for example opened its London office four years ago with five lawyers. It now has around 30 lawyers and 10 partners after a series of raids on UK firms such as SJ Berwin.
Ropes & Gray is another high-level private equity-focused US firm that recently decided it would be better off with its own chunky London office. Since it launched two years ago its growth has been little short of stratospheric. The firm now has around 50 lawyers, including 13 partners, while its personnel growth has seen a corresponding elevation in the deals tables.
“At Ropes we had a great brand and hired credible people in the first wave,” says the co-managing partner of the firm’s London office Maurice Allen on the reasons behind the rapid expansion. “As far as recruiting goes, yes it’s a bad market at the moment for transactions but it’s not a bad market to recruit.”
Linklaters alone is likely to offer up around 70 partners over the next few months – potentially rich pickings for any hungry firm. And contrary to what the perception may be, the fact that this is the second wave of culling at the magic circle firm underlines the fact that the partners coming out are far from cast-offs.
“They’re clearly able lawyers but maybe they don’t fit politically, or they’re older, or they no longer have powerful sponsors within the firm, or they’re just not in a profitable area,” says one City partner. “But that doesn’t mean they’re not attractive to other firms.”
Sources at Willkie insist that nothing is certain. No offers or decisions on hiring new blood are understood to have been made. Indeed, one Willkie partner who preferred not to be named ruled out any chance of it being on the hunt for an English law finance capability.
“If we wanted to do lender work for example we’d need to be on bank panels and that’s not really our style,” the partner says. “We, and Dickson Minto too, are far more about referrals and recommendations.”
Busy doing nothing
But back to the alliance. Now, it should be said up front that there is no indication that it is doing anything wrong. The real problem is that there is no obvious indication that it is doing anything much at all.
“They have an alliance?” is how one City senior partner responded when asked for his thoughts on the arrangement.
Another London lawyer makes a disturbingly similar comment.
“Was it even an alliance?” he asks. “I’ve seen nothing to suggest the alliance has worked.”
A third joins the chorus.
“I haven’t heard anything about it recently and that might be the key worry,” says the lawyer. “There’s virtually no visibility whatsoever. Nobody talks about it.”
Clearly, part of that low profile is down to the historically low levels of private equity deals there has been in the market over the past few years.
But that aside, there are signs that market sentiment is simply moving away from loose structures of this kind, with Davis Polk & Wardwell’s decision to launch an English law capability in London this month, raising questions about its relationship with Slaughter and May, being the most recent indication of where client need is currently residing.
Four years ago, when Willkie was considering its deal with Dickson Minto, there was another option on the table. The US firm is known to have taken a serious look in 2007 at hiring a handful of UK private equity partners and launching its own English law practice. Ultimately it decided not to go down that route and formed the alliance instead, a deal that admittedly saved it from stumping up to hire talent just as the market bombed.
“The fact they didn’t go out and hire their own private equity lawyers probably saved them $10m,” says one UK management consultant.
The deal has always been only about M&A, and in particular private equity. “It was never intended to be all things to all men,” stresses one rival City partner familiar with the alliance.
Today Dickson Minto provides Willkie primarily with English law leveraged finance capability in London and across Europe. In return the US firm provides Dickson Minto with M&A capability in the US. That, at least, is the model on paper.
“The markets have been against them,” admits one UK law firm consultant.
“Dickson Minto’s a private equity shop and the deals just haven’t been there. But I can’t believe Willkie will be delighted with the level of work it’s got from them.”
Prior to the alliance, which the firms claim is non-exclusive, Willkie worked with a handful of the UK’s top private equity practices, including those at Ashurst, Macfarlanes and Travers Smith. It waved goodbye to those referrals when it struck the deal with Dickson Minto.
The current party line at Willkie is that it is happy with the level of referrals it currently gets from the Scottish firm. But dig a little deeper and there is the suggestion that UK referrals have never been particularly forthcoming from any source.
But it seems clear that, apart from the occasional deal with a US element, there has been next to nothing winging its way to the States from the UK and, sources suggest, a minimal amount of matters on which the two firms work together, full stop.
“The Dickson Minto relationship is a myth,” claims one City partner. “It’s just there on [the UK firm’s] website to say they have an offering for French and German deals plus a US offering. But they don’t do many deals together, they don’t market it together and some of the key clients, such as BC Partners, don’t use Dickson Minto in France or Germany.”
There are deals, but they are sparse. Last year Dickson Minto is understood to have referred independent TV producer Tinopolis to Willkie partner Robert Langdon when the company acquired Los Angeles-based A Smith & Co Productions. The same client also acquired the Burbank, California-headquartered TV production company Base Productions.
“We’re currently working on a deal where Dickson Minto has the lead and recently bought a Danish company where [Dickson Minto partner] Michael Barron handled the finance,” says a Willkie partner. “So it’s working well in both directions.”
This sentiment is echoed by co-chair Steve Gartner. “What I care about,” he says, “is whether our clients are getting served, and they are.”
But this alliance was never about what a UK firm could refer to a much larger US cousin. It was about providing Willkie with resources in the UK and to augment London. If Willkie is indeed starting to think seriously again about building its own capability in the City, then questions about the alliance’s viability will surface.
From the Scottish firm’s point of view, the consensus in the market is that nothing will happen while Alastair Dickson still runs the show.
“Alastair Dickson’s mercurial,” says one private equity partner. “He’s said publicly that he’s not interested in merging [with Willkie]. Maybe something will happen when he retires, but that might not be for years.”
Another City partner echoes this sentiment.
“Dickson Minto will never merge while Alastair’s there,” he states. “He’d never give up control to a US firm or anybody.”
Dickson is thought to have been looking to sell around five years ago but did not find a buyer. And despite the private equity market over the past few years, the firm’s recent performance has been relatively strong.
When Dickson finally calls it a day the firm that bears his name is more likely to look for a deal. But Willkie might not be prepared to wait that long. There was a time when a deal with Ashurst was a posssibility for Willkie and even now that deal should not be ruled out.
“The firm would be a good major entrée into the US, although it’s not clear that an Australian merger is the best inducement to a US firm to merge with Ashurst,” says one City partner. “But Willkie is one of the few remaining top-quality independent US firms that a firm such as Ashurst would be interested in.”
It is also possible that even before Dickson goes, which ultimately he will, the alliance with Dickson Minto would be a barrier to a tie-up between Willkie and Ashurst. It would hardly be the first alliance member to see itself scooped when a better offer came along, although on that deal specifically Ashurst’s own Paris office might present more of a barrier.
Dickson Minto is a notoriously hard firm to read and Dickson did not return calls for this article. The firm is among the now-tiny group in The Lawyer’s Top 100 that does not officially divulge financial information for the end-of-year report. It is a closed book to outsiders.
But that lack of transparency is also known to be a source of frustration within the ranks of its US partner firm. The Scottish firm’s website is, frankly, diabolical in terms of providing information. As even one Willkie insider puts it: “I was happy that we found someone in Dickson Minto whio is even worse at marketing than we are at Willkie”.
For any of Willkie’s US clients interested in finding out more about who they work with in the UK, there is very little there. As a way of summing up the alliance’s visibility in the UK market, it is hard to beat.
At a glance
Dickson Minto 2009-10
Willkie Farr & Gallagher 2009
Willkie in Frankfurt
Willkie Farr & Gallagher’s 20-lawyer German outpost has an outstanding reputation for mid-sized private equity deals and in Mario Schmidt it has one of the best deal-doing lawyers in the market.
The office has been built on a series of lateral hires, the latest of which came late last year when Willkie hired Clifford Chance global aerospace and defence head Georg Linde.
His hire followed the January departure of Willkie capital markets partners Michael Schlitt and Susanne Schäfer to Hogan Lovells.
Deals over the past three years include 3i’s $206m (£134.59m) acquisition of DC DruckChemie in May 2008; Whitehall Street Real Estate Fund’s $5.25bn acquisition of Landesentwicklungsgesellschaft in June 2008; and Teva Pharmaceutical Industries’ $4.9bn acquisition of Ratiopharm International in March 2010.
Major UK and European deals over the past three years
- January 2008 (Greece):
Excel Maritime Carriers’ $2.2bn (£1.44bn) acquisition of Quintana Maritime
- October 2009 (France):
Sanofi-Aventis’s agreement to acquire the entire share capital of Fovea Pharmaceuticals
- December 2009 (UK):
Bloomberg’s acquisition of New Energy Finance, undisclosed
- January 2010 (Switzerland):
Novartis’s acquisition of the remaining 23 per cent stake plus options in Alcon for $12.1bn
- March 2011 (UK):
Itochu Europe’s acquisition of Kwik Fit (GB) for $1bn
- May 2011 (UK):
Charterhouse Capital Partners’ acquisition of a 60 per cent interest in Environmental Resources Management for $950m
- May 2001 (France):
General Mills’ acquisition of a 51 per cent interest Yoplait for $1.1bn
- August 2011 (France):
Clayton Dubilier & Rice, Axa Investment Managers Private Equity Europe and Canada’s Caisse de dépôt et placement du Québec’s $3bn acquisition of engineering business Spie
- May 2008 (UK):
Vitruvian Partners company
Red Dragon’s acquisition of Carmarthenshire-based provider of television production service Tinopolis for $63m
- September 2008 (US):
Clyde Blowers’ $645m acquisition of the fluid and power business unit of Textron
- October 2008 (UK):
Standard Life’s merger with Gartmore
- February 2009 (UK): Windsorville Investments’ acquisition of 64.31 per cent of London-based real estate development company Bulgarian Property Developments
- December 2009 (UK):
Vitruvian Partners’ acquisition of an undisclosed majority interest in Leeds-based credit reference agency Callcredit Information Group
- June 2010 (UK):
Manfield Partners’ acquisition
- December 2010 (UK):
Acquisition of Courier & Passenger Transport Holdings
- December 2010 (UK):
Dunedin Capital Partners’ acquisition of an undisclosed minority stake in the Brentwood-based provider of courier services CitySprint (UK)
- May 2011 (Italy):
BC Partners’ (via Icon) acquisition of a $1bn interest in clothing business Gruppo Coin
- July 2011 (UK):
£44m leveraged buyout of Red Commerce by management-led investor group, including Dunedin Capital Partners
- July 2011 (Sweden):
BC Partners’ acquisition of Com Hem, a Härnösand-based provider of cable TV services, from Providence Equity Partners and Carlyle for SKr16.77bn (£1.57bn)
Source: Thomson Reuters
Willkie in Paris
Willkie Farr & Gallagher and Dickson Minto have a long relationship in Paris and the office is well-known as one of the best private equity shops in town.
That said, Willkie did not have a barnstorming 2011 when it comes to personnel, losing three partners during the year.
Laurent Faugérolas, who advised on a number of high-profile deals, including acting for Sanofi-Synthélabo shareholder Total on its €57.7bn (£48.03bn) acquisition of Aventis in 2004, left for Weil Gotshal & Manges in January.
In March corporate finance partner Stephane Sabatier left for Norton Rose, while private equity partner Emmanuel Scialom moved to Salans in November.
Sources still suggest it will be a record year in France, however.
The US firm still has 15 partners in Paris. Four were hired from Freshfields Bruckhaus Deringer in 2010 with the majority having been hired laterally.
Daniel Payan is probably the firm’s best-known partner, with the majority of his deals coming from PAI Partners, including four of the deals Willkie announced for the office last year. If Payan were to go that would be a serious blow indeed, both to the US firm and to its relationship with Dickson Minto.
“I’m not anti-alliances, but you need to know what you want to achieve and over what time period,” says Jomati founder Tony Williams. “The question you have to ask when going into an alliance is, ‘What are we looking to achieve and over what period?’.”
An alliance often has a short shelf life, adds Williams. This is either because it has been structured as a low-cost entry into a market or because it is a route to Plan B, ie a full-blown merger.
“The danger always is to go in without an end game, such as, ‘In two years we’ll do x, y or z’,” says Williams. “You should at least have an understanding of what the alliance could lead to.”
There are plenty of current examples out there for Willkie or Dickson Minto to look to for inspiration, should they feel minded. For example, the recent deal between Blake Dawson and Ashurst has very clearly been labelled as a precursor to a merger.
In contrast, one of the main problems with Herbert Smith’s alliance with Gleiss Lutz and Stibbe, which collapsed late last year, was that the end games of
the constituent parts were never aligned.
The German firm had form in that respect. Back in the early 1990s Clifford Chance was one of the first UK firms into Germany.
At that time Gleiss had an office in Stuttgart and was looking to launch another in Frankfurt, while Clifford Chance wanted a serious German presence.
After three years Gleiss had still failed to commit enough resources to meet the UK firm’s aspirations and so the alliance was terminated.