Inheriting the “crown jewels”: Clifford Chance’s private equity chiefs focus on succession

London-based dealmaker Jonny Myers and Frankfurt-based partner Oliver Felsenstein have now been co-heading the private equity group for around a year. Felsenstein was first into the role following the departure of former head David Walker to Latham & Watkins in June last year (21 June 2013).

They claim they took over a buoyant ship, with a global headcount of 50 private equity partners and revenue up 14 per cent on the previous year. But both are well aware that Clifford Chance private equity has been hitting headlines for the swathe of departures to US firms, and are taking action to spread key clients across the firm.

In a move they say reflects the changing nature of private equity – a famously relationship-driven sector – they are moving away from heavy-hitting single client relationships to teams of four or five relationship partners from across the firm.

“Private equity is becoming less and less people-driven,” says Myers.

Felstenstein adds: “If you look at where Clifford Chance started you had Matthew [Layton, now managing partner] and James Baird with three key relationships and that’s all you needed.”

“Partners used to have one client,” Myers says. “[Adam] Signy would work on Candover Investments and James Baird would do CVC while Matthew did Permira. Private equity was always based around key relationships with key individuals and the challenge was to build around that.

“Senior partners used to struggle to bring in younger partners and develop trust but we’re doing it little by little.”

The partners paint a more competitive and distinctly less cosy world of private equity, in contrast to the often-referenced heyday of Clifford Chance’s 30C corporate group made up of now-departed star private equity partners like Adam Signy and current corporate and firmwide leaders Guy Norman and Matthew Layton (15 August 2014).

Felsenstein adds: “In the old days you were a younger partner and working on CVC but James was always the lead partner and you had to wait for the senior partner to leave before you got a shot.”

Both claim that now, no one client is dependent on one partner. Perhaps that is just as well, with Signy, Walker, young star Kem Ihenacho and a raft of other heavy-hitting partners having left for US firms (18 February 2014).

In the past four years, four star Clifford Chance partners have moved to Latham & Watkins, three have gone to Weil Gotshal & Manges and two to Simpson Thacher & Bartlett. However Felsenstein and Myers categorically deny those exits have damaged the firm’s key relationships (21 February 2014).

“Of course, if we lose a partner it does concern us – some partners more, and some partners less,” says Felsenstein. “But for us, it’s ongoing business as usual. It’s important that we keep our client relationships, as we have in all the cases of the partners who have left in the last few years and it’s also a chance for younger partners to step into their role.

“Our firm is bigger than any individual,” he adds. “It’s not about David Walker, it’s about Clifford Chance.”

Felsenstein might well pick on Walker as an example. As former private equity head and key point of contact for Carlyle, he was understood to have billed an estimated £2m to £3m from the client in a good year and several millions of pounds in total annually (22 April 2013).

His move to Latham in 2013 was a well-documented pincer move by the private equity house, who already turned to Latham as their key advisers. But Myers and Felsenstein say that relationship, as their other key ones, is safe.

“We did worry about the relationship with Carlyle because David was a good relationship partner and Latham is the number one firm of Carlyle,” says Felsenstein. “But we’ve kept all the relationships.”

Myers says: “Carlyle has not been eaten away. We recently did a transaction for them in Seoul. We do a range of projects with them – not just in London, but in Asia and emerging markets. Simon Cooke works with them in Asia, and Nigel Wellings. On the debt side, it’s a range of partners.”

The private equity house’s choice not to use Clifford Chance on the recent IPO of RAC must have stung. Despite having acted on Carlyle’s £1bn acquisition of RAC from Aviva in 2011 the client turned instead to Linklaters for advice on both the sale and IPO process earlier this year (29 September 2014).

Clearly there is a need to manage succession and combat worries caused both by Walker’s exit and others, such as that of Kohlberg Kravis Roberts (KKR) adviser Signy to Simpson Thacher. Both acknowledge that succession planning is an issue for private equity in general and for the firm.

That explains the move to broaden client relationships across the firm. With Carlyle that means putting in place a team of client partners: one from London, one German and one from Asia as well a real estate and corporate partner.

CVC is now the reserve of former London corporate head David Pearson – recently put back on full-time fee earning – Christopher Kellett in Germany and Andrew Whan in Tokyo.

The private equity leaders also hail Cinven as a major succession success story, with Myers and partner Brendan Moylan having lured Cinven away from Ashurst’s Bruce Hanton (7 August 2013).

“We’ve looked at more projects for them than there are hours in a day or days in a week,” says Myers.

Myers and Felsenstein say the move away from one-on-one relationships in the private equity sector is accompanied by less active and less loyal private equity clients. The firm is on a bid to increase its number of clients as well as deepening current relationships and is not just focused on the capital.

“There are less deals out there. We’re seeing PE houses doing less deals so we need a broader base,” says Myers. “Our main aim is to spread clients and have a mix between big-ticket work for KKR and deals for mid-cap clients.

“Now we’re trying to balance between a range of clients and increase revenue from each of them. We’re identifying, say, 12 clients and trying to reach a particular revenue with each of them as we spread into more jurisdictions and regions.”

“We want to double our revenue in four to five years,” says Felsenstein, and that means adding to revenue from all of the key clients as well as identifying the upcoming major players in the marketplace.

But why choose Clifford Chance over a US firm with all the high-yield and US debt financing capacity to match?

“Clients don’t want a single provider,” says Myers. “Where we stand out a mile is our strength across Europe as we’ve been in PE from the very start. US firms don’t have that breadth of practice. We know the different approaches that can be taken to succeed on a transaction.”

Myers and Felsenstein claim that their point of competition against the US firms making serious inroads in the UK is a European platform and their spread across the continent. But perhaps more surprising is their bullishness surrounding high-yield financing (17 March 2014).

“This is a trend,” says Felsenstein, of the increase in US-originated leveraged finance, which has been the prime USP of US firms in London in recent years.

Felsenstein admits that at the beginning of the US debt financing wave the firm was concerned. “US firms had done 2,000 of these deals compared to Clifford Chance having done 200,” he acknowledges.

In a bid to beef up its offering, Clifford Chance was the first of the magic circle to take tentative steps into the market with the hire of Michael Dakin in 2005. More recently the firm added high-yield partner Alex Bafi to its finance and capital markets practice in Paris (3 September 2014).

But the firm, like all of its magic circle counterparts, has been hit with allegations from US firms that they are vulnerable to their US competitors in the City because of their lack of high-yield expertise.

“[The high-yield issue] was a challenge but it wasn’t life threatening,” says Felsenstein, who is firm in his assertion that Clifford Chance’s high-yield team is plenty strong enough, with six US-qualified high-yield partners in London.

Even so, both Myers and Felsenstein are convinced that US high-yield finance is a passing trend that is becoming increasingly out of favour with clients – particularly when buying European assets. Unlike the US firms making hay in London, they say they have the breadth to compete on a broader scale.

“US firms will have to find another story to push if finance does come back to Europe,” says Myers, laughing.

What about competition from US firms poaching their associates? All firms speak of a lack of stellar associates at 4-5 years PQE and the competition is on to snare the best ones, despite the fact that less are needed to make the perfect Clifford Chance platform. As clients seek more “senior advice”, leverage has reduced and today stands at 1:3. However there is still stiff competition for the best candidates.

“The business model is different because clients ask for more senior advice. In the past there would have been 50/60 associates on a project,” says Felsenstein.

Tempting blockbuster salaries at US firms are well documented – a three-year PQE lawyer at White & Case can expect to take home a salary of £97,000 plus bonus while an NQ rate stands at £97,500 at firms like Kirland & Ellis and Latham & Watkins (31 March 2014).

But Myers and Felsenstein say they are not worried.

“Each of us gets offers very very often and our compensation doesn’t allow us to offer pay over performance but people still decide to stay,” says Felsenstein.

“We offer a training programme where associates are really trained to become excellent lawyers,” says Myers. “If you leave after five years from a US firm you are not guaranteed anything.”

So what of the coming year and the leaders’ new priorities then?

“It’s all about deepening the relationships with major clients,” says Myers, adding the firm will also be focused on identifying the new players in the marketplace and making sure to net them as clients.

Neither is worried then about the position of private equity within the corporate team? “No, we are the crown jewels in corporate,” says Felsenstein.