DES: can acquisition finance survive another setback?

Last week Sarah Coucher, head of acquisition finance at Denton Wilde Sapte (DWS), resigned to join US firm Bingham McCutchen, as revealed on Coucher will have to wait a while before joining Bingham; her notice period runs for nine months to June 2003.
Given Coucher's background as a workouts specialist, Bingham's overtures were always likely to be successful. In the past two years Bingham has managed to carve out a nice little business in the City – often for US bondholders, through which it has a place at the table on a number of major restructurings, including Marconi. For Bingham, which has needed another UK partner to join its team, led by James Roome, Coucher is a nice add-on – but for Denton Wilde Sapte it is a serious blow. For this is much more than a simple partner move.
DWS banking head Graham Paine says: “I'm sorry to see Sarah go, but the immediate impact isn't particularly great because the market is quiet.” Yet since its merger nearly three years ago, DWS has struggled to hang on to its position in the acquisition finance market. One could even argue that it has been the history of a client relationship squandered. DWS has already had to face the loss of Morgan Stanley as a major client in structured finance with the forthcoming move of Debbie Carslaw and Mark Menhennet to Sidley Austin Brown & Wood. But even more pertinently, the Royal Bank of Scotland (RBS) relationship in acquisition finance – formerly the flagship of the firm's banking practice – is under serious threat.
For decades, Wilde Sapte, as it was then known, had been NatWest's house law firm. The bank was worth upwards of £10m to Wilde Sapte in annual billings. But since the merger with RBS, that work has fallen off dramatically. Paine argues: “RBS hadn't traditionally used Denton Wilde Sapte. We've kept a pretty good amount of RBS NatWest work.” Paine's own practice with RBS is robust; but The Lawyer understands that DWS now bills the bank barely £5m a year across the firm.
Looking back, the damage to DWS's general banking practice had already been done at the time of the merger. When James Johnson left for Clifford Chance (CC) and Nick Syson left for Linklaters, their moves affected both the restructuring and the acquisition finance practices. Both Johnson and Syson are all-rounders, equally at home in workouts and leveraged buyouts. Crucially, both were key partners in the NatWest relationship. “James John-son and Nick Syson were the main guys,” acknowledges Paine.
There is an obvious question here. Why was DWS unable to institutionalise its practice with its major banking client? Even now, its workout business with RBS – which makes up the majority of its mainstream banking practice – remains firmly centred on Paine.
On the restructuring side, Paine still has a strong lock on multi-bank workouts, but even that relationship is being attacked by former Wilde Sapte partners Robert Elliott at Linklaters and CC's Johnson. DWS is also having to fend off competition from CMS Cameron McKenna partner Stephen Foster on workouts.
It wasn't just about Johnson and Syson. DWS had to contend with a stream of losses at senior assistant and junior partner level. Philip Spittall was made up to salaried partner shortly after the DWS merger, but later left to join Linklaters. Chris Howard, considered to be a restructuring star in the making, also left to join Robert Elliott's team at Linklaters. Structured finance partner Jonathan Shann joined Freshfields, as did Brian Gray – who was subsequently promoted into partnership. A source says: “[DWS] just wasn't prepared to give them the assurance about their future and give them an incentive to stay.”
Amid all this upheaval, Coucher managed to maintain a decent enough mid-sized buyout practice, but the firm never managed to propel itself up the ladder, even to the height of the buyout market 18 months ago. Wilde Sapte used to be one of the few credible finance practices outside the magic circle. It is on a number of panels – Citibank, RBS, Bank of America, Standard Chartered and ABN Amro among others – but still lags massively behind A&O and CC for work. What's more, the DWS published deal sheet has a distinctly historical tang to it. The £590m Baxi-Blue Circle deal for Sociéte Générale happened more than two years ago, as was the £200m Norcros deal for CIBC. Most of the other deals are much smaller and nestle in the £50m-£100m bracket. A solid enough business, but not one to trouble the likes of A&O and CC.
The practice is now being led by Chris Fanner, who came from the DWS side of the practice. Firm sources say that he will be supported by Ian Roberts and Lorraine Davies – but one suspects there is a sleight of hand here; Roberts is a housing finance specialist, for example.
This is not to say that DWS's general finance practice is suffering. Paine says: “We have other finance practice areas, and we've just had a very strong first quarter – way above budget.” Indeed, the asset finance and trade finance practices are all solid, and there are green shoots in the structured finance and capital markets practice, led by James Curtis.
As for acquisition finance, Paine is sanguine. He says: “We've got some good, young blood coming up and we're looking to build – to get in other people from outside.”
And there's the rub. Behind A&O and CC, DWS is having to compete with not only Ashurst Morris Crisp and Lovells, but US firms such as Shearman & Sterling and White & Case – as well as Linklaters and Freshfields. It does not take a genius to work out that DWS's relative profitability – average profits per partner are £325,000 – falls way behind its competitors. Paine may be being a trifle optimistic when he says that lateral hiring is on the agenda. And of all those firms, DWS is the only one without any US capability. DWS may have to end up settling for a lot less than second best.