State of play: Is Clifford Chance private equity still in the game?

Clifford Chance’s private equity team is looking depleted and with the global corporate chief role still wide open, it looks like it could use a half time pep talk.

The football window may have closed but the CC transfer window remains resolutely open as another funds partner defects to a rival team. The departure of new-generation partner Kem Ihenacho marks the eighth private equity departure in five years with four of those ending up at Latham & Watkins (18 February 2014).

After a steady trickle of private equity exits Ihenacho was hailed as a new young hope for Clifford Chance, ready to pick up the mantle of private equity chief David Walker. 

But before he could solidify the firm’s apparently weakened ties to clients like Permira and Carlyle he fled to be reunited with his former funds head, who quit for Latham in April 2013 (9 April 2013).

“The market had known that he was considering going in the autumn,” says a source. “He was going to go a few months ago and was persuaded to stay by Clifford Chance but obviously things have changed. I think he’s an important part of the bench, not a leading name in the same way that Matthew Layton or Simon Tinkler but definitely important.”

Latham’s funds team is looking increasingly like a young Clifford Chance funds practice. At the US firm Ihenacho will join old private equity heavyweight Tom Evans, who followed Walker in October 2013 (9 October 2013).The CC set is topped off by Nick Benson who manoeuvred his way to Latham via Weil Gotshal & Manges.

What is happening at the magic circle firm and why are so many funds lawyers seeking pastures new? Is the grass that much greener in US firms’ London outposts? The firm is certainly developing a reputation as a watering hole for opportunistic US firms.

Adam Signy kicked off the trend back in 2009, defecting to Simpson Thacher & Bartlett (5 May 2009). He was followed out the door by heavy-hitting funds head Jason Glover to the same firm in 2010 (20 July 2010). That was followed by the dramatic defection of trio Ed Gander, Nigel Clark and Nick Benson to set up a new funds practice at Weil in 2011 with tax specialist Jonathan Kandel (13 June 2011).

It is certainly true that a US firm is not the risky strategy it once was. The London office of Latham is heralded as a frontrunner but US firms in London are making a name for themselves taking high-yield and debt work.

“It’s that conjunction between the sort of high-yield and debt markets,” says a source, while another says, “the issue goes to the US debt platform, which is a critical part of acquisition financing now. Clifford Chance just aren’t that strong in that area.”

The difference in remuneration structures could also be a draw. One source says, “I can’t help thinking that it’s the lockstep versus not lockstep thing. If you’re doing particularly well and you’re in a lockstep it’s tempting to think ’why am I pulling this lot along’?”

Another says, “it’s no secret that Clifford Chance have had a tough few years and someone like Kem has probably not done as well as he might have at another firm”.

Average profit per equity partner at the firm slid 9 per cent in revenue for the 2012/13 financial year, going from £1.1m to £1m after the previous year’s 7 per cent rise (8 July 2013).

Clifford Chance’s lockstep system contrasts with a more dynamic attitude to remuneration at US firms. One source agrees that, “the big danger is that if you’re a magic circle firm committed to lockstep you’ve not got a lot of flexibility when it comes to these special guys with great connections. What do you do? Do you give them an extra goody on the firm’s side?”

Whatever the answer there is little doubt that money doesn’t solve everything, least of all this particular puzzle. Sources say the moves can’t all be about cash and the fact that star players Walker and Evans are now at Latham will have been a draw for a restless young partner in search of a change.

“David Walker was pretty critical and there will have been internal relationships which will have been quite strong,” argues one source.

But for Latham its motivation seems clear.

“What Lathams has done with CC is very client led,” says a source. “The Latham strategy was all about Carlyle.”

The star private equity client was once Clifford Chance’s prized practice jewel (24 September 2013). It has advised the group since 2002, with Carlyle developing into one of its strongest relationships under David Walker, then London-based private equity head. He won the client for the firm back in 2003, snatching a role advising on the acquisition of a 31 per cent stake in technology and security group QinetiQ for £42m (15 April 2013).

Walker snared the Carlyle mandate after initially acting for a different client involved in the bidding process who pulled out.

Clifford Chance advised the private equity client on between three and six deals per year between 2007 and 2012 and it is thought Walker led roughly two a year in total for Carlyle as well as Equistone Partners.

Adding Walker to Latham’s roster in the UK was a neat move as the firm already advised Carlyle in the US. While not quite check-mate for Clifford Chance and Carlyle, the move undoubtedly dented the relationship – in 2013 Latham took up its first UK-based deal since Walker defected (8 July 2013).

Adding Ihenacho only bolsters that relationship. As co-chair of the firm’s corporate Africa group he is not only key to the new generation of partners taking over the Carlyle relationship but central to dealings in new jurisdictions.

Ihenacho led the first investment for Carlyle’s sub-Saharan Africa fund in late 2012, advising on its $210m (£132m) investment in Tanzania-based agricultural company Export Trading Group (26 November 2012).

He is not the only partner with contacts to Carlyle at the firm, though. Spencer Baylin, Nick Hughes and young-gun Amy Mahon all also take key mandates with the client.

“Kem did one deal in Africa but he is not the key partner for them in London, that is Caroline Sherrell. On African private equity Spencer Baylin and Nick Hughes do huge amounts, for Actis and others,” says London corporate head Simon Tinkler.

But clients are a worry for a firm losing stellar partners, particularly in a relationship-driven area like private equity. The issue is all the more keenly felt as Matthew Layton gives up his corporate crown in anticipation of taking over from chief David Childs in May 2014 (27 November 2013).

“I think they’re now lacking heavyweight private equity partners who hold relationships,” a source says. “With Matthew having gone upstairs and David gone across to Latham I just don’t think they pack the punch that they did.”

“In private equity it’s a worry because few clients are really firm clients and typically hey will see the person as their lawyer rather than the firm,” says a source.

Another adds, “it’s about credibility and track record and I don’t think that’s easy to replace.”

But what of other key clients? Despite the exits the firm has held on to some key relationships. The firm’s tie to CVC Capital Partners may have weakened briefly with former private equity head James Baird’s retirement in 2011. Simpson Thacher also ate into the firm’s relationship with Kohlberg Kravis Roberts’ (KKR) with the hire of Signy.

Simpson Thacher had long been KKR’s adviser in the US and in 2010, passed over the magic circle firm on its £955m buyout of Pets at Home (27 January 2010).

But Brendan Moylan swooped in to take up the private equity giant’s acquisition of South Staffordshire Water and Cambridge Water (13 May 2013).

Indeed, the firm has held onto some key mandates with corporate partners stepping up to the plate and young guns coming through. Clients like Permira are now the reserve of heavyweight Jonny Myers. A source says, “he’s been involved with a lot of the big clients for a long time”.

Myers and Moylan have also scored with Cinven, which has gradually moved away from Ashurt’s Bruce Hanton in favour of the duo.

The firm has also managed to cling on to CVC and now cites it as a key relationship with David Pearson leading in London, Christopher Kellett in Germany and Andrew Whan in Tokyo.

Tinkler is also keen to stress the re-emergence of erstwhile corporate top-dogs. Former London corporate had David Pearson is back on full-time fee earning – “you lose a bit of Matthew but you gain a lot of David,” says Tinkler – and Nigel Wellings is also heading back from the Middle East in the next 12 months and ready to get to work.

In terms of the new guard, Amy Mahon looks after Equistone with Tinkler. The partner, who re-joined Clifford Chance in 2008 after a stint at Macquarie, was tipped as a strong contender with Ihenacho. She was intended as a key contact for Carlyle, CVC and Permira.

Caroline Sherrell, promoted in 2012, assisted Walker and is due to pile into the Carlyle relationship too (27 April 2012).

But sources say that the exits of such key heavyweights will have a lasting impact on the firm, which is left with a lack of pure private equity partners.

In its private equity heyday, when the ‘30C’ team including Layton, Signy, Guy Norman and Patrick Sarch were still grouped together, a source said, “I would say that a few years ago they were unquestionably the market leading practice in London. But I don’t think that’s the case now and they are suffering”

“It has traditionally been a strong private equity business but that is falling away,” says one source.

Another adds, “I don’t think there’s anyone within CC who would say they don’t prize [private equity]. It was always the golden part of the firm. But I think you reach a point where it’s like SJ Berwin, where the crown jewels have been weakened and weakened and people say ‘do we see them as a threat any more? Do they still have the leading market position?”