Last year represented something of a watershed for private equity lawyers in the City. After relatively flat deal activity since the financial crisis, US law firms that had done their homework started bulking up their London buyout practices. 

A backlog of private equity-backed assets approaching sale, increasingly confident debt markets, a resurgence in corporate M&A, fundraising activity and signs of an IPO recovery all suggested the early noughties buyout boom might be on its way back – albeit on a smaller scale. 

"In a lot of ways the prevailing climate for starting a business in a firm has not, in the last five or six years, been better than in the last 12 months," says Ian Bagshaw, who became one of the year's standout hires when he and fellow Linklaters private equity co-head Richard Youle signed for White & Case in October 2013.

Less than a year after joining White & Case's existing private equity practice, the pair – previously linked with a number of US firms including Ropes & Gray before joining White & Case – have already overseen or attracted significant investment into the firm's buyout practice, at associate and partner level. 

The duo were far from the only partners lured away from the magic circle last year by American firms looking to cement their positions as the go to firms for US and international buyout houses in the City. 

Latham & Watkins hired private equity heavyweight David Walker in April 2013 to strengthen its bench, with Walker joining from Clifford Chance (CC), where he was head of the practice and Carlyle Group relationship manager. 

Many in the City suggest Carlyle asked Latham to make a play for Walker, though the former CC man denies this sequence of events. Regardless, CC – no stranger to private equity poaching attempts by US rivals – went on to see Africa co-head and buyout partner Kem Ihenacho and Tom Evans also depart for Latham. Of the group – and perhaps tellingly, given the Carlyle dynamic – Walker was the only CC partner not to be held to a lengthy notice period.

The moves were not all from UK to US firms. In another changing of the guard, shortly after Walker's hire Shearman & Sterling hired a team from Weil Gotshal & Manges including private equity partner Mark Soundy, who has links with clients including Apax Partners and Bridgepoint Capital. 

Making a play

There are a number of reasons why US firms, such as Weil Gotshal & Manges, Kirkland & Ellis, Simpson Thacher and those named above amongst others, have been able to make such an impact in the UK buyout market while more mainstream M&A has remained more difficult to crack. 

A key explanation for this trend is the globalisation of the US investment houses, which have been increasing their activity in Europe using US engineered financing techniques and turning to their trusted advisers from across the Atlantic as they do so.

In addition, with the notable exception of CC, the magic circle firms have traditionally tended to focus more on their larger corporate relationships than private equity, despite some past attempts to expand their offering by others. 

Meanwhile buyout houses themselves have historically put more emphasis on personal relationships with individual partners and associates – making it easier for partners leaving one firm to move their relationships to the next.

"It is a simple business," one partner comments. "It is about the right people and the right clients." 

"Private equity is a personal industry," adds another. "There are relatively few people and relationships are built with lawyers."

This trend goes some way to explaining why big name hires are so important for firms wishing to capitalise on the market.

However, partners alone do not make a practice and while lateral partner hires may have been attracting the headlines, US firms have also been expanding at associate level and increasing training in the sector across the board.

"In addition to the regular M&A training already provided to our associates, we are introducing a very sophisticated and comprehensive private equity training and development programme for our tax and M&A associates," says Soundy. 

"It's not enough for us simply to win new deal work: we then want our deal teams to do such a great job, at every level, that the client keeps coming back to us with more."

The commitment US firms have shown to private equity in recent years means they are attracting lawyers earlier in their careers, with some seeing better long-term opportunities in addition to higher salaries.

White & Case, in the past nine months, has hired 30 associates into its corporate practice to help with its renewed push on private equity. In addition, the firm plans two further partner promotions in the PE group and has hired CC senior associate Martin Forbes as a banking partner focusing on private equity sponsors and Maclay Murray & Spens banking partner Colin Harley, who also focuses on advising financial sponsors and alternative capital providers.

Measuring success

One City private equity partner suggests the firms bulking up their offering over the last 18 months should be judged on three core measures of success: the people the firms are recruiting, the clients they have won and the volume of work being carried out.

Others though suggest that volume is not the right indicator for firms which want to work for the biggest financial sponsors on the biggest, most complicated deals around Europe, which might mean fewer deals of a larger size and complexity.

"It is all about quality of deals," says one leading practitioner. 

"There is any number of mid-market deals worth between £100m-£300m, but what everybody wants is to be acting on the big deals, the ones with 10 figures."

"Before we [Walker and Evans] joined there was already a very good private equity practice at the firm," says global co-chair of Latham & Watkins' private equity practice, David Walker. 

"Clients come to Latham because of our very strong and broad private equity offering, across M&A, funds, high yield and leveraged finance, including US financings, and our arrival, together with that of Kem [Ihenacho] next month, is just about building out the bench." 

Clients of the firm in London now include Permira, EQT and a retrenched relationship with Carlyle. BC Partners, which has traditionally turned to buyout shop Dickson Minto, is increasingly working with Latham, while CVC Capital Partners, Bain and Onyx have all sent work Latham's way. Walker also led for Hellman & Friedman on its acquisition of a €2bn (£1.6bn), 70% stake in Scout24 Holding from Deutsche Telekom.

At White & Case, Bagshaw and Youle are targeting a different market. Since moving to the firm the pair have done deals for HgCapital, Avast Software and Rhone Capital among others. The team have also done a number of financing deals for Polish mobile telecoms operator Play, and advised on the AIM listing of Arle portfolio company DX Group.

Linklaters however has held onto a number of private equity mandates, conducting three separate deals for Hg and for Arle since the departures.

Commenting on his plans, Bagshaw says: "We have got the growth, and investment in place to be the leading middle market PE firm in Europe. 

"When partners put their careers on the line by leaving at their peak to go to these US firms, associates recognise that and this makes US firms a more credible choice than ever before for star associates."

However, it may be more difficult for partners lured by dollar signs to take their relationships with them in future, with some suggesting relationships are becoming more institutionalised with firms rather than individuals. One partner tells of a major buyout house insisting at the point of seeking advice that its mandate comes on the understanding that the relationships is between the house and the firm and not the respective individuals in each. 

"The houses are beginning to become more institutionalised, more like the corporates," he comments.

As demonstrated by Ropes & Gray's recent hire of Travers Smith's former private equity head, Phil Sanderson, the trend for US firms to bulk up their buyout teams in the City looks set to continue. Others expected to recruit include Dechert, Gibson Dunn & Crutcher and Skadden Arps Slate Meagher & Flom, with the latter expected to try to fill the gap left by Allan Murray-Jones' retirement later this year. 

With a limited pool of partners and mounting demand it's likely to turn into something of a merry-go-round. 

As one market observer comments: "The leading people are not available unless they move again. There are only 10 or 12 people who have access to the top guys at the big houses so the only alternative is to hire one of the big names at a secondary firm." 

See also:

• Linklaters PE duo Bagshaw and Youle quit to join White & Case
• CC private equity chief leaves firm to join Latham in London
• Shearman to boost City ranks with Weil partner duo
• Taking London – the US firms swooping in on the City's top talent

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