Sidley Austin Brown & Wood’s German launch has started a war of words between the US firm and Lovells.
As The Lawyer revealed in the 17 October issue, Sidley is set to launch a Frankfurt operation on 1 March and has raided relationship firm Lovells for two of its securitisation partners, Oliver Kessler and Jens Rinze. On the surface it seems a good move – Kessler is the head of Lovells’ securitisation group in Germany and both lawyers are rated highly by German legal publisher Juve . Their experience includes derivatives, structured real estate finance and project finance, as well as straight securitisation.
However, since Sidley’s raid, Lovells has thrown doubt on the calibre of Kessler and Rinze’s work. Head of capital markets Sharon Lewis tells The Lawyer: “Jens and Oliver ran a referral business and didn’t generate as much work in Germany as we would have liked. When we fill their positions we’ll be looking for lawyers who can develop the business further.”
The statement flies in the face of both firms’ assertions that negotiations between the two were amicable.
Kessler, still a partner at Lovells, has been quick to defend his position. “I joined Lovells in 2000 and set up the capital markets practice from scratch. If you look at the rankings in 1999, Lovells had, for example, no securitisation capability in Germany, and now they’re in the second tier of firms, behind Clifford Chance and Hengeler Mueller,” he argues.
And Kessler has nothing but praise for his new firm. “Sidley represents a once-in-a-lifetime opportunity. They’re a market leader globally in structured finance and there are huge synergies between their global structured finance practice and the team,” he enthuses.
Sidley has declined to comment on Lewis’s criticisms, but it is understood that both Lovells and Sidley had agreed to not talk negatively about one another while negotiations were still in progress.
Meanwhile, Lovells is playing hardball on Kessler’s and Rinze’s exits. The duo will not be put on gardening leave, meaning Kessler and Rinze will work at Lovells until 28 February, the day before the Sidley office is due to open.
Lovells may need that time to regroup after all four of its securitisation associates revealed that they will be following Kessler and Rinze to Sidley, leaving Lovells with a reduced securitisation capability in Germany.
So how does Sidley’s raid fit into its European strategy? Graham Penn, co-head of Sidley’s London-based international finance group and the partner-in-charge of the Frankfurt project team, says that although the initial focus will be on structured finance, Sidley will also be looking to gain a foothold in the lucrative M&A market.
“Our strategy in Frankfurt will be the same as everywhere else we open: we want to focus on practice areas where we can become a ‘go-to firm’,” explains Penn. Within the securitisation market, Sidley will start off by focusing on a few specific products which segue well with the firm’s existing London practice.
“For structured finance, the key areas for us initially will be in the property-related asset classes and asset-backed securities,” says Penn.
That area has been a rich vein for Sidley in London. But even with its Lovells hires, Sidley faces a real challenge to get a good foothold in Germany. The US firm is a relatively late entrant to a market where a few key names dominate the landscape.
Jörg Wulfken, a securitisation partner at Mayer Brown Rowe & Maw (MBR&M) in Frankfurt, argues that Sidley may have left it too late. “I wasn’t surprised to see them open in Frankfurt, but I expected it to be sooner,” he says.
Within the German structured finance market the top two firms are Clifford Chance and Hengeler Mueller. It has been very hard for new firms to break into this market, although MBR&M, which began its German push three years ago, is recognised in the market for having a solid business, if one on a lower tier. “Mayer Brown has been the impressive new entrant of recent years,” one Freshfields Bruckhaus Deringer partner told The Lawyer.
Penn admits that Sidley is a firm which takes its time when deciding to open up in a new jurisdiction, but his argument is that Sidley is not new to the German market. “We’re not going into Frankfurt from cold. We have a significant portfolio of German clients and clients who are very active in Germany,” he insists.
Sidley’s securitisation practice is built on the investment bank originators as opposed to issuers, making it easier for the firm to get new work out of existing clients.
Banks that Sidley already carries out transactional work for in Germany include Deutsche Bank, Morgan Stanley and JPMorgan. The firm also acts for Fitch Ratings and US fund Fortress.
Kessler says that Sidley will be looking to challenge the top two firms and sees it as a chance to move into the top tier in German securitisation thanks to the merger of his German clients with Sidley’s existing international banking relationships.
“Our main competitors at Sidley will be Clifford Chance and Hengeler Mueller. At Lovells it was difficult for us to compete with the top two firms because most of our clients were European-generated. But Sidley brings the big US banks, which means we’ll be in a position to challenge the top two,” he asserts.
In Germany Sidley has also worked in combination with a number of law firms on some of its deals. One of these firms included Lovells, and it was through this work that Sidley came across Rinze and Kessler.
Penn says it was also becoming impractical for lawyers in the London office to be spending the majority of their time in Germany and that the firm has been held back by not having native German speakers as part of the team.
Even if securitisation proves profitable for Sidley in Frankfurt, there are also questions as to whether such a narrowly focused practice is the best way to launch into Germany.
Michael Weller, a securitisation partner at Clifford Chance in Frankfurt, questions the logic of this move. “It seems unusual for a law firm to start with such a specialised practice,” he says. “Most firms launch with a broader spectrum of services, including tax and corporate.”
Whatever the final fallout from the spat with Lovells, Sidley is well placed to make inroads into the German market. Its large international reputation and a client base that includes both international and German domestic names, may have competitors looking over their shoulders. But building out into an M&A practice may be a different matter.