Slaughter and May: still gunning for private equity

So Slaughters still thinks it can challenge CC for major buyouts. Is it deluded?

It's not often that you hear Slaughter and May make a grand statement.
But the firm's ambition to be “one of the big players in private equity within the next three to five years”, as one partner stated last week, will probably have partners at the likes of Clifford Chance, Ashurst Morris Crisp and Macfarlanes guffawing into their cappuccinos.
If some readers are experiencing a sense of déjà vu at Slaughters' racy strategy, it is because a couple of years ago the firm made pretty much the same claim.
At the time the firm had recently acted for Schroder Ventures (now Permira) on the £397m management buyout of Hogg Robinson, and was set to land a succession of high-profile deals for Duke Street Capital. Then it all went strangely quiet.
Admittedly, it would be easy to dismiss Slaughters' private equity push because, at first glance, this is an area that already appears sewn up by a small clutch of firms.
It also seems questionable that Slaughters could parlay its fantastically strong reputation in corporate into the stereotypically impenetrable world of private equity.
The idea that Slaughters could take on the might of, say, Clifford Chance which, with clients such as CVC, Apax Partners, KKR and PPM Ventures, seems pretty remote.
Firms might be more worried about Linklaters and Herbert Smith making a play for private equity, although they should be careful of being totally dismissive of Slaughters.
Admittedly, there are gaps in Slaughters' expertise – notably in funds. For the time being at least, Clifford Chance, SJ Berwin and to a certain extent Ashursts, already have the leading positions in fund work.
Clifford Chance's Jason Glover for example, a prolific biller who last year notched up between £3m and £4m in fees, acts for the likes of Duke Street where, incidentally, he used to work, on setting up funds.
Of course, fund work is an attractive market because of the prospects of repeat business – the common perception being that if you advise on establishing the initial structure the private equity house will come back to you because of your in-depth knowledge of the company.
And Slaughters does have some fund capability, with the likes of highly rated partner David Frank, who acts for Permira.
But the firm has been dining out on this particular client for some years as Ian Sellers, a partner at Permira, previously trained at Slaughters. Whether or not the firm has forged strong links in fund establishment at other private equity firms is unclear.
There is room for growth here. However, some private equity professionals have begun to question the link between fund establishment and transactional work.
One (non-lawyer) private equity expert admits to being bemused that certain firms give the impression that transactional work is in some way a specialised area.
But Slaughters has already proved that it is more than capable of competing in private equity.
Ironically, it was Clifford Chance that first recommended that Duke Street instruct Slaughters after it was conflicted from acting on the private equity house's bid, a couple of years ago, for the UK industrial conglomerate Wassall.
Unfortunately, Duke Street's bid was aborted as KKR eventually acquired Wassall for $1.2bn (£769m).
The word on the street was that because this deal toppled for Duke Street (meaning a lack of juicy fees for Slaughters), it wanted to reward the firm with another deal. Either that or the private equity house really was impressed by the advice Slaughters provided.
Duke Street then approached Slaughters to act on the successful hostile bid for Wickes by Focus Do-It-All and on the company's £285m acquisition of Great Mills.
Slaughters seemed to lose its footing somewhat after Duke Street asked firms to pitch to advise Focus on a £170m high-yield bond issue. Slaughters, along with Davis Polk & Wardwell, its US 'best friend', attempted to win the mandate against Clifford Chance with its prolific in-house US law capability.
Clifford Chance eventually scooped the work.
Was it the lack of an integrated US capability that lost the work for Slaughters, since it resolutely refuses to go down the route of merging with an international firm? Possibly.
However, Slaughters has proved that its best friend policy does work after it was recently instructed by CVC Capital Partners on the £370m acquisition of Spanish utility company Iberdrola on the strength of a referral from Uría & Menéndez.
In another twist of fate Slaughters won the work after Clifford Chance was conflicted out after being instructed by Deutsche Bank on the deal.
Another reason firms dismiss Slaughters from the private equity fray is its reliance on acting for corporates, which means that it will often find itself in a conflict situation.
This is something that Slaughters, along with Herbert Smith and Linklaters, strongly disagree with. And, as the examples of Duke Street and CVC show, conflicts can still hit the leading players, such as Clifford Chance.
At the end of the day Slaughters will admit that it has lost some momentum following the rush of work from Duke Street.
However, the firm argues that by acting for the likes of smaller houses, such as Blackstone and Star Capital Partners, it is slowly chipping away at the prevailing private equity elite.
And despite Slaughters' somewhat lofty reputation, the firm is not too proud to act on the smaller £50m-plus deals.
If the firm keeps building on its growing reputation for taking on bids on the back of conflicts, then it may regain some momentum.
Slaughters has a long way to go but it would be foolhardy to ignore it.