The name Simpson Thacher & Bartlett is synonymous with two private equity giants: Kohlberg Kravis Roberts (KKR) and Blackstone Group. And perhaps the most astonishing thing is how Simpson Thacher has managed to keep these two happy at the same time.
As one US partner at a rival firm enviously puts it: “Being the go-to firm for these rivals is a bit like being the favourite advisers of Pepsi and Coke.”
Another observes: “They have dedicated KKR and Blackstone partners supported by hundreds of dedicated KKR and Blackstone associates across all offices.”
In the US, relationships between Simpson Thacher and the two private equity clients are so entrenched that several partners have gone to take up senior in-house roles at both groups.
Former senior private equity partner Bob Freeman moved to Blackstone in 2002 to become the group’s chief operating officer and general counsel, while former Simpson Thacher partner, David Sorkin became KKR’s first-ever general counsel in November last year.
London’s 25-year-old office has succeeded in transferring the relationship to the European market – or rather, the English law market. Over the past few years Simpson Thacher has made well-documented lateral hires that have shored up the links.
Most famously, Tony Keal, the veteran acquisition finance lawyer, left Allen & Overy (A&O) for Simpson Thacher in 2005 and brought an existing relationship with KKR on borrower finance work. In a similar vein, Euan Gorrie, who left A&O in 2002, has been instrumental in driving the Blackstone acquisition finance relationship.
With such an institutionalised pair of clients, it’s not surprising that other players in the market associate Simpson Thacher with KKR and Blackstone exclusively.
But are KKR and Blackstone the only drivers of success for the US firm? If not, which other clients generate the big bucks for both London and New York?”These are clearly very significant clients for us and we’ve worked extremely hard across the firm to continue to earn their support,” says Simpson Thacher London managing partner Gregory Conway. “Having said that, we’ve been engaged by TDR and First Reserve and have worked hard to earn their support.”
Apax Partners and Providence have also turned to Simpson Thacher on big-ticket deals. In 2005 the firm teamed up with Danish firm Bech-Brunn to advise Danish telecoms group TDC on the biggest European leveraged buyout (LBO) of all time. TDC accepted a $10.2bn (£5.6bn) bid from Nordic Telephone Company (NTC). The firm advised the Apax-led consortium comprised of Blackstone, KKR, Permira and Providence.
London-based Simpson Thacher private equity partner Michael Wolfson led the team on the transaction.
Despite this high-profile mandate, others in the market are not so convinced of Simspon Thacher’s more recently formed relationships with other houses.
“You’d be hard pushed to find one of these deals that KKR or Blackstone were not involved in,” says a London managing partner at a rival US firm. “They’ve won the mandates on the back of KKR and Blackstone.”
Despite market perceptions, the firm insists it has successfully made progress with other private equity houses such as TDR, Apax and Providence, as well as building up its corporate work advising Enel and Acciona on their $58bn (£29.7bn) tender offer for Endesa last year.
“The notion that Apax or Providence would instruct them is nonsense,” a City private equity partner claims. “Simpson Thacher is a brilliant firm that’s adopted a strategy of focusing on KKR and Blackstone and it’s worked very well. But they haven’t made inroads to other houses because this was never part of the plan.”
A 2007 M&A deals list published on the firm’s website highlights just one transaction in which Simpson Thacher advised Apax without the presence of old friends KKR and Blackstone on the consortium: the $7.75bn (£3.97bn) LBO of Thomson Education in May last year. The firm advised Apax and Omers Capital Partners.
For the moment Simpson Thacher appears happy to focus its English law capability on financing. But the trio of Gorrie, Keal and Stephen Short has not just kept KKR and Blackstone happy – it has occasionally opened doors to other private equity clients. For example, the firm also advised TDR on the financing of its e3.5bn (£2.61bn) acquisition of US construction company William Scotsman last year. And that TDR relationship largely emanates from Simpson Thacher’s third UK acquisition finance partner Short, formerly of Ashurst.
“We have three banking partners here in London who’ve been extremely successful,” Conway explains. “Having a strong banking team has enabled us to better service our clients in Europe.”
Indeed, City observers often overlook Simpson Thacher’s stellar CV on the banking side. It has become one of the favourite firms for investment bank JPMorgan Chase in the US. The firm displaced Cravath Swaine & Moore’s relationship with Manufacturers Hanover Corporation on its merger with Chemical Banking in 1993, for example.
The firm then went on to advise Chemical Banking on its 1995 merger with Chase Manhattan Corporation and has since managed to muscle in on the longstanding Davis Polk & Wardwell relationship with JPMorgan, with New York partner Frank Huck taking one of the lead roles on this relationship.
“The firm cemented its relationship with JPMorgan and part of that has meant we’ve been successful in the underwriting sector,” Conway says. “Deutsche Bank has also been a winner for us.”
In New York, a longstanding Lehman Brothers relationship was nurtured by firm chairman Richard Beattie and finance partner Andrew Keller.
“The firm also advises Merrill Lynch and Goldman,” a New York-based partner says. “I’d say the strongest relationship in that area is with Lehman [Brothers].”
It is the Lehman tie that brings us back to Blackstone. With this relationship stretching back to the early days of the firm, it was hardly surprising that Blackstone had no qualms about cosying up to Simpson Thacher when former Lehman managing director Stephen Schwarzman left the investment bank to launch the private equity group in 1985.
“There’s nothing wrong with this,” explains a London private equity partner. “The firm’s dedicated itself to those clients and I have nothing but the utmost respect for them. It hasn’t been necessary for the firm to build such strong ties elsewhere. The question is, how will they do now the big-ticket deals have dried up?”Simpson Thacher’s relationships with KKR and Blackstone have certainly made the headlines. But its finance connections with the investment banks have been a key factor in its success. And having those banking lawyers may come in rather handy when restructuring comes back into fashion.