Outside knowledge

With all the sales and acquisitions that Spirent has gone through recently, it helps that its general counsel has worked for both its legal advisers. Vanessa Pawsey investigates

The last time Spirent general counsel and company secretary Paul Eardley appeared in The Lawyer, he was being berated for jeopardising Dibb Lupton Broomhead’s (now DLA) Rottweiler image. Formerly a partner in Dibbs’ Manchester office, Eardley’s moment of fame arrived when his Australian terrier won best breed of dog at Crufts in 2001. This time, more appropriately, he is being featured for his role in the restructuring of Spirent.

When Eardley joined the company in 1998, it was an old-style conglomerate named Bowthorpe. However, Nicholas Brookes had taken over as chief executive a couple of years previously and a process of refocusing the business on the telecoms sector was well underway. Divestment was a priority and Eardley’s role was to project manage acquisitions and disposals as Bowthorpe reinvented itself as a cutting-edge technology company. Today Spirent is made up of two parts: telecoms company Spirent Communications and the networks products group Hellermann Tyton. The company describes itself as a worldwide provider of integrated performance analysis and service assurance systems for next-generation network technologies.

Eardley says he moved in-house because he wanted a bigger challenge – and he certainly got one. In 1999 the thermal management business was sold, while last year Spirent divested its sensing solutions business. Earlier this year he managed the disposal of part of the company’s aerospace business. His initial team of two was not enough, so he recruited Tim Roberts from Lovells in 1998 and Angus Iveson from Kent firm Brachers in 2000.

But while the shift towards telecoms may have looked good in 1998, by the middle of 2000 it had started to look more problematic. Then the bubble burst and Eardley caught sight of the troubles ahead. Not one to be quashed by the disappointment, he plays down the difficulties, focusing on the deals that have gone ahead. There have been two acquisitions this year: in June, Spirent bought certain assets from the remote special services test product line of Anritsu Company in a deal worth $26m (£16.6m); then in July, the company announced that it was buying 85 per cent of the issued share capital and options of Caw Networks for £31.6m.

“There’s still M&A work going on but we see more litigation and insolvency-related issues with third parties,” admits Eardley. “In these conditions, people are more minded to litigate than to enter talks. But it’s like that for all businesses in a downturn.”

But there is no doubt that the legal role has changed slightly, with the emphasis shifting from project management to business management. Roberts has moved out of the legal department into business development, while Iveson has relocated stateside to the company’s office in Rockville, Maryland, where he is assessing its internal legal spend.

The changes are part of a restructure at the head office, which has seen 15 people made redundant and Eardley take over the role of company secretary. “Legal and secretarial was merged at the beginning of this year,” he explains. “This means I now manage the board, stock exchange compliance, corporate housekeeping and remuneration issues.” He is also managing three more staff.
The restructuring is obviously designed to cut costs, but according to Eardley it also makes business sense. “It works well because it avoids duplication and there’s clearly an overlap. Plus it means there’s better communication between the two departments,” he says.

Spirent uses DLA and Linklaters in the UK and Debevoise & Plimpton and Goulston & Storrs in the US. Interestingly, Eardley has worked at both Linklaters and DLA. He was an associate at Linklaters between 1987 and 1993 before moving to become a partner in the Manchester office of DLA.
Spirent is a long-term client of Linklaters and Eardley took the relationship with him when he moved to DLA.

He has continued to use both firms since joining Spirent and claims he has never had any reason to make any changes. “Of course we talk to other firms from time to time, but we’ve never organised an official beauty parade,” Eardley says. “We’re very comfortable with our advisers and have a good two-way dialogue. It helps that I’ve worked at both firms before because it means we’re able to give them better instructions.” He explains that Linklaters is used for larger deals that involve finance and DLA gets the rest. For example, this year Spirent instructed Linklaters and Debevoise on the Caw acquisition, and DLA on the UK aspects of the aerospace sale.

Eardley says he has always been very conscious of legal spend and claims that he has not had to look for ways of cutting back more recently. “In M&A we always had to be efficient,” he says. “In the preliminary stages we handle the deal in-house. I also think it’s very important to budget for cost. This means discussing and measuring the job against its budget.”

Fixed-fee arrangements were also considered. “We haven’t used them very often because when we’re trying to agree a fixed fee, I find the external lawyers aren’t very flexible,” Eardley says. “Of course, we have a good relationship with them, but it’s still better on both sides to budget rather than to agree a fixed fee.”

Although Eardley has never worked at Debevoise or Goulston, he is equally diligent in maintaining his relationships in the US. When one of Eardley’s in-house team went on maternity leave, Goulston sent a lawyer to London on secondment – a move that has resulted in a new London office for the Boston-based firm. “The secondment went very well,” Eardley recalls. “We got a very experienced lawyer and we did some big divestments, which included selling part of our aerospace business to Curtis Wright. She took the in-house role working alongside Goulston. The whole experience was so positive that she stayed to set up a London office.”

Spirent’s latest profits are not good. For the six months ended 30 June 2002, the figures show turnover down 32 per cent, with operating profits down 56 per cent. Eardley remains optimistic. “We’ve shown a resilient performance from ongoing businesses,” he tells The Lawyer, and possibly himself.

If recruitment is any means of judgement then he is right and not all is doom and gloom. He has just recruited a new lawyer, Andrew McDonald, from Freshfields Bruckhaus Deringer. “The quality of the applicants was very high this time,” Eardley says. “This could be an indication of the market, but it could also be because the job gives UK lawyers the chance to project manage cross-border deals. Working in a global business like this you have to be prepared to work in any jurisdiction. At the moment, I’m handling work in Australia, Switzerland, Germany, the UK and the US, so despite the slowdown we’re having a very busy year.”

Commendable optimism. One hopes that is is well founded.
Paul Eardley
General Counsel and Company Secretary

Organisation Spirent
Sector Technology
Employees 5,500
Legal capability Four
Turnover £800m
Annual legal spend $1m (£638,000)-plus
General counsel and company secretary Paul Eardley
Reporting to Chief executive Nicholas Brookes
Main law firms Debevoise & Plimpton, DLA, Goulston & Storrs and Linklaters