When a tsunami hits it is more often than not caused by an earthquake below the ocean’s surface and only felt when a wall of water swallows the shore.
For Kirkland & Ellis in London it was a seismic shift 3,945 miles away in Chicago six years ago that led to the waves of upheaval that continue to course through 30 St Mary Axe today.
Just three months into 2016 Kirkland’s London office is already losing a six-partner team, led by equity partners Erik Dahl and Christian Iwasko, to Sidley Austin. Troublingly for Kirkland, the team is also taking the client relationship with TowerBrook, the New York private equity firm with $8bn (£5.6bn) of assets under management.
Andrew Hagan, a high-yield partner billed as “a star” in some quarters, has announced his departure for Freshfields Bruckhaus Deringer, home to Ward McKimm, a former Kirkland big-hitter in high-yield and debt capital markets who jumped ship to the magic circle firm in 2015 – and for whom Freshfields broke its UK lockstep.
And Sam Pakbaz, a Kirkland lifer – not counting spells at Shumway Capital and Deutsche Bank – and the key corporate partner in London for major global client Bain Capital, has finally taken his long-planned retirement.
In fact, the past two years in London, and it seems globally at Kirkland, have been marked by the proverbial revolving door of partners moving at dizzying speed with, much to the chagrin of many in the legal market, dizzying pay deals of millions of dollars a year.
One City lawyer claims: “They have messed up the recruitment market in London, the lateral hiring market, because they throw around these ludicrous numbers, these ludicrous amounts of money.
“They’re doing ‘cheque book recruiting’. It has turned the market here into a sort of whore-fest rather than people moving for grown-up ideas about what the practice needs and what the clients need.”
Since 2014 around 20 equity and non-share (salaried) partners have left Kirkland in London. In that same period some 14 partners have joined the office, including three relocations from Kirkland in Asia – David Eich, Ashley Young and Christopher Braunack – and two returns from private equity firms – Jim Learner from Huntsman Gay Global Capital and Matthew Gerber from DMC Partners. (Although Gerber now appears to be managing director and general counsel Europe at TowerBrook.)
“They’re doing ‘cheque book recruiting’ that has turned the market here into a sort of whore-fest”
Globally, around 100 partners have gone in the past two years. Recently, the firm decided to double its notice period for equity partners from 60 days to 120 days “to bring it into line with the market”.
If this is the tidal wave, the moment it started was the appointment of Chicago corporate partner Jeffrey Hammes as chairman of Kirkland’s 15-strong global management executive committee in 2010.
Prior to that Kirkland had been chaired for nine years by Thomas Yannucci, a Washington DC litigator with a paternal approach who, according to sources, was not afraid to set a lawyer straight but with an arm round the shoulders rather than a clip round the ear.
When certified accountant Hammes, a straight-talker with “huge ability and enormous energy”, assumed the chairmanship of the firm he did so on a full-time basis. In contrast, Yannucci had continued to practise law.
Because of the shift in the chairman’s role to day-to-day management it struck Hammes that London needed scrutinising.
Pulling no punches at a partners’ meeting in 2014 the chairman told attendees that he “had to sort out the London office”. For Hammes, London had become “stagnant”.
“It was a stale platform,” says one lawyer. “He wanted to build a market-leading platform and take it to the next level.”
The first wave
Back in 2006 Kirkland’s London office was changing.
Co-head Stuart Mills was leaving, his colleague Learner became de facto chief of the City office and the firm was embarking on an aggressive drive to build out its British practice.
Kirkland had set up in London in 1994 primarily to service Bain, the private equity giant that has been, at various times, the global firm’s largest, second-largest or third-largest client depending on litigation cases such as defending BP on the Deepwater Horizon oil disaster or acting for Volkswagen on the carbon emissions scandal.
As well as supporting its US clients there was a desire to make inroads into the European private equity market, providing the sponsors of deals with both borrowing and corporate advice.
That year private equity partners Graham White and Raymond McKeeve arrived at Kirkland from Linklaters, as well as Stephen Gillespie, described by a peer as a “proper solid, good guy” who was then global co-head of banking at Allen & Overy. They were joined by Rory Mullarkey, a corporate associate at the same magic circle firm. The hope was that Gillespie and White would give the London office credibility and make hiring other big names easier.
It also proved to be the dawn of the huge pay deals that have since become synonymous with Kirkland.
White, for example, was guaranteed a place on the firm’s points system which, back then, began at a minimum allocation of 10 points and a maximum of 80.
The system has recently been tinkered with so every partner with one point was awarded four. This means the entry to equity is now 40 points with a high of 320.
Back in 2006 it meant that someone like White went to Kirkland at around $4.5m a year and by the time he left, he was earning around $8m. McKeeve, who left the firm in 2008, was paid around $2.5 million a year. Gillespie was recruited at around $3m.
The arrival of three funds specialists from legacy SJ Berwin in 2007, Mark Mifsud, Richard Watkins and Justin Dolling, as well as another finance heavyweight, Shearman & Sterling’s Philip Crump, cemented Kirkland’s European intentions which were growing alongside its office in Munich, opened in 2005 by corporate specialist and former US Army officer Dahl.
The bold European plan scooped Kirkland the International Law Firm of the Year accolade at The Lawyer Awards in 2007.
Kirkland did win some work for European private equity clients including CVC as well as acting for CCMP on the £505m takeover of vacuum equipment-maker BOC Edwards in 2007.
However, it was Weil Gotshal & Manges in London and New York that won the follow-up work on Edwards, advising on its flotation on Nasdaq in May 2012 and its subsequent sale to Atlas Copco, when it acted as co-counsel with Davis Polk & Wardwell’s London office.
Kirkland also advised Nordic firm Industri Kapital on its €300m (£232m) acquisition of Attendo Healthcare in 2006 and the following year acted for Montagu Private Equity on its acquisition of Danish logistics group Unifeeder.
However, the timing of this new strategy could not have been worse. Its launch was shaped by the boom years of 2006 and 2007, but then came the collapse of Lehman Brothers.
The value of deals in the European private equity market collapsed and has only just returned to pre-crash levels. According to the Centre for Management Buyout Research the value of European private equity deals in 2015 reached €80.9bn, the highest since €172.9bn in 2007.
“It meant that between 2008 and 2011 to build a private equity practice was impossible,” reflects one lawyer.
Seeing the way the market was turning, Kirkland took on restructuring lawyers Jason Salman and Paul Atherton from Cadwalader Wickersham & Taft and Sidley Austin respectively in 2008. However, both left for Greenberg Traurig Maher within a couple of years.
Nevertheless, in 2010 Kirkland recruited private equity partners Gavin Gordon and David Arnold, both rising stars, from Ashurst.
In 2012 Gordon and Arnold won Kirkland’s first major instruction from Cinven, traditionally an Ashurst client, when it advised the private equity firm and Goldman Sachs Capital Partners on the £1.5bn sale of Swedish tool distributor Ahlsell to CVC.
The deal was a perfect example of what Kirkland hoped to achieve in London. The Ashurst recruits had netted a big European fish from their former firm and a cross-section of the office’s practices – Gillespie in finance, McKimm in debt capital markets and Shaun Goodman in competition – were brought in to provide advice.
McKimm’s appointment in 2011 was an indication of the way financing in the buyout market had changed from relatively vanilla bank lending before the crisis to more complex debt arrangements such as high-yield. That same year, Kirkland also relocated capital markets partner William Burke from its Chicago office.
The market was shifting and so too were the sands within Kirkland.
The ebb tide
In 2012 Learner left the law for US private equity firm Huntsman Gay Global Capital.
Learner had been, as one lawyer put it, “top of the tree” when it came to managing the firm’s relationship with Bain in London thanks to his close ties with Dwight Poler, managing director for Europe at the private equity house.
Learner passed the corporate torch to Pakbaz while partner Neel Sachdev remained key on debt.
As a senior member of the London practice, White took Learner’s place on Kirkland’s global management executive committee.
There are varying views on what happened next.
Some say that the London office experienced a period of stability, a steady hand on the tiller guiding it through the aftermath of the financial crisis. For others, there was a “sense of drift”.
However, yet another take on London, says a source, was that “the pendulum was swinging and debt was becoming more important”.
And Hammes was taking notice of London.
There were a number of prongs to Hammes’ strategy for the UK and globally. First, he wanted to identify areas where people were performing well and to make sure they were remunerated properly.
Second, Hammes “wanted to eliminate people who were not rowing the boat in the right direction”, or prima donnas who created rifts.
“He got rid of the factions within the firm,” says one lawyer.
Third, Hammes is “a strong believer in strong leadership” and in his view London should have been recruiting lawyers to reflect the changing market.
Enter Stephen Lucas.
A gathering swell
Lucas had been at Weil Gotshal since 2011, prior to which he was with Linklaters and, pay-wise, was on a three-year guarantee of around $4m a year. He left Weil Gotshal the week his guarantee ended.
Lucas and Sachdev had been friends for years and had frequently acted on either side of the deal table from each other, with the Kirkland partner advising the borrower and his opposite number representing the banks.
It is an oft-repeated story that Lucas is ‘the $8m man’, earning more than some of the private equity directors Kirkland services. Rival law firms claim clients have been turned off by the size of Lucas’ salary.
One London private equity partner claims that clients have said of Lucas, ‘We know he’s under a lot pressure to produce but we’re not the guys who are going to give him the work just because he happened to get a sweet deal.’
Regardless, nearly everyone The Lawyer spoke to agrees that Lucas is “incredibly smart”, “super bright”, “amazingly energetic” and “an absolute force of nature”.
What some people have questioned is his role as the manager of an office full of lawyers – that and why, as a lawyer who has predominantly acted for banks, he moved to a firm that works solely for borrowers.
“How much can you step on people’s toes before they start screaming?”
One lawyer says: “It’s a trophy hire, like Real Madrid buying Beckham. He may not be the best footballer but he’ll sell a lot of shirts.”
Sources say that the decision to recruit Lucas was taken by Kirkland’s management committee but was done “with the blessing of certain people in London”, including Sachdev.
On whether White and Gillespie were consulted about recruiting Lucas, one lawyer says: “It wasn’t done without their knowledge. It was done without asking them.”
By winter 2014 Gillespie had left for Gibson Dunn & Crutcher and White was heading to Fried Frank Harris Shriver & Jacobson.
Meanwhile that year Pakbaz had told management of his plan to retire and Learner had decided to come back to Kirkland.
To make sure prize client Bain was protected Kirkland brought back corporate partner Eich from its Hong Kong office, which he had founded and from where he led the firm’s global private equity practice in Asia. Private funds partner Braunack also journeyed back.
Kirkland relocated debt finance partner Young from Hong Kong to London, where he worked for Bain affiliate Sankaty, which had used Gillespie on a number of transactions.
In terms of who would take the seat on the global management executive committee “there were three natural candidates for the role”, says one lawyer. These were Lucas, Learner and Dahl.
There was, apparently, support for all three. The thinking on Learner, says a source, was that he would have been a “safe bet” because he had done the job before, but would it mean “more of the same”? Dahl, meanwhile, was “a good possibility”.
But sources say that there was only ever really one choice.
One lawyer comments that when lawyers in the UK were consulted about who should become de facto head of the London office, “You could say what you thought or could say what you thought Jeff was thinking. People read the tealeaves.”
What gave Lucas the edge was that by the time the question of the management committee came up Lucas and Sachdev had started implementing some changes.
“That had made the firm more collegiate and had helped to bring in work,” says a source.
But a number of lawyers claim this revealed the real political dynamics of what was going on in the London office, painting Sachdev as “the power behind the throne.”
Another says: “The really disruptive thing is not only did they bring Mr Lucas in, who is a lovely man, but that he was standing against Learner, so that was a bit of a shock.”
Regardless of what the theorists thought, sweeping changes were being made to the way clients were managed and Lucas was charging ahead with a recruitment drive that, for some Kirkland lawyers, risked tilting London too heavily away from corporate.
The tsunami
One of the biggest changes Lucas made to London was in the way clients and new instructions are managed.
Under the “old Kirkland” way, recalls one lawyer, “they wanted you to be entrepreneurial, to go out and develop client relationships. They would support you and back your talent”.
The ‘new Kirkland way’ is designed to be more collegiate in that it is much more centralised in allocating work to teams, rather than the old system which lawyers claim allowed the key relationship partner to keep a stranglehold on a client.
Some claim the new direction is a ‘magic circle’ way of working and speaks to Lucas’ years at Linklaters and Clifford Chance, and their approach to institutionalising client relationships.
But it also chimes with the firm’s global management executive committee changing how people are rewarded. Instead of having a billing partner, Kirkland introduced a billing team that meant everyone who worked on a deal was recognised for their input.
Lucas has also instigated a more group-orientated way of working, whereby people regularly gather to talk about opportunities and share knowledge. Perhaps more importantly, there has been a focus on cross-selling so clients are exposed to the firm’s various disciplines.
However, the developments have caused unrest among Kirkland lawyers averse to change. Lucas has faced challenges in prying clients away from relationship partners and opening up the work to other lawyers.
“He’s had to work around existing relationships,” says a source. “But how much can you step on people’s toes before they start screaming?”
Lawyers claim that Learner and Lucas have been inserting themselves into client relationships and have become involved in pitches for work, for example.
In the two years Learner was away from Kirkland some claim the key executives at Bain in London moved on to form other relationships within the firm and that Learner was casting around for other clients.
For others, Lucas’ involvement with clients was about him justifying his pay deal.
An observer counters that it is impossible for a lawyer to impose him or herself on a client if a relationship does not exist. And apparently partners taking a colleague’s client is verboten.
One lawyer notes that clients want Lucas to work on their deals and, in fact, wanted him to work for them before the changes were introduced.
“For some people that was a threat, they couldn’t handle that,” says the lawyer.
Carter Phillips, chairman of Sidley Austin’s management committee, has confirmed that TowerBrook will be moving along with his new private equity team from Kirkland.
It is not clear if HIG Capital, another Dahl and Iwasko client, will also migrate but Phillips says that Oaktree Capital, where new recruit and former Kirkland partner Sava Savov spent three years on the European private equity team, is already a client of Sidley Austin in the US.
Such was the desire to move, it is understood that Dahl will be paid $5m at Sidley compared with the $6.5m he was receiving at Kirkland.
Phillips declined to comment on pay. Dahl and Iwasko did not return calls for comment.
While the ‘new Kirkland’ way may or may not have contributed to the team’s move to Sidley Austin, it did mean its corporate capability had taken a hit.
The relationship with top client Bain
Bain Capital is still the major client for Kirkland but pieces of work are now finding their way to other firms in London.
Ropes & Gray already has a strong relationship with Bain in the US. Brad Malt, chairman of Ropes, is the personal lawyer to Bain co-founder and former presidential hopeful Mitt Romney while the private equity house’s general counsel, Sean Doherty, is a former lawyer at the firm.
While Ropes’ Boston partner Bill Mone acted on Bain’s original acquisition of brick-maker Ibstock in 2014 the firm’s London office – namely partners Matthew Cox and Will Rosen – advised on the subsequent flotation of the company nine months later.
Weil Gotshal was retained to advise Bain and Advent when they floated global payments provider Worldpay last year.
The firm also acted as one of the advisers to a consortium comprising Advent, Bain and Clessidra on the acquisition of Italian financial services business ICBPI.
Of course, in private equity deals, winning the legal work depends on a number of variables. A managing director may have a relationship with a firm in a particular jurisdiction, they may prefer a certain lawyer in a practice and, because a company can be sold on or floated, relationships with a partner may change.
The corporate challenge
One of the more startling departures from Kirkland in 2015 was McKimm’s move to Freshfields.
Recognised as a brilliant debt capital markets lawyer McKimm was doing complex finance work such as high-yield debt for a roster of dream private equity houses such as Apax, Carlyle, Cinven and CVC.
While the firm may be trying to cross-sell now, there is speculation that in the past it was not able to entice major private equity houses to use Kirkland for corporate as well as finance work.
Between 2006 and now Kirkland has been ranked only once in the top 25 law firms with any involvement in European M&A, according to Thomson Reuters.
In 2013 the firm was placed 24th after working on 69 deals with a collective value of $31.9bn, whereas the likes of US competitors Latham & Watkins, Weil Gotshal and Simpson Thacher & Bartlett have been consistently ranked during the past decade.
Incidentally, on worldwide acquisitions Kirkland is ranked in all years between 2011 and this year so far, though it did not figure in the top 25 between 2006 and 2010.
It is not as though Kirkland was not moving corporate lawyers up the ranks.
The firm claims the likes of Advent, Apax and Lion Capital as clients as well as its institutional mainstays GTCR and Vista Equity Partners.
It has maintained a relationship with Montagu Private Equity, which has included working on the £170m sale of laboratory technology group CliniSys to Roper Technologies this year. Kirkland also acted on Montagu’s original purchase of CliniSys in 2013.
Through its European presence Kirkland has also won work for private equity powerhouse KKR, as well as for Ontario Teachers’ Pension Plan.
However, while securing the likes of Matthew Elliott from Linklaters was seen as a coup, some observers have said Kirkland really needs a big corporate hitter like a Derek Baird or an Adam Signy from Simpson Thacher, or Clifford Chance’s Jonny Myers, to really win those major European mandates.
The perception remains that it needs more big-hitters to grow European private equity.
For Kirkland, the aim is to keep building a full-service sponsor-side practice with high-yield, corporate finance, tax, antitrust and funds expertise. The management will is there. It is known that the firm is searching for an M&A partner to take it into the corporate big league.
To that end Lucas has already brought in partners that can support such a hire, such his former colleagues from Linklaters, Paula Riedel in competition who joined partner Shaun Goodman in the antitrust department and Jonathan Kandel, a tax partner from Weil Gotshal who is now working with the department’s Jane Scobie.
Kirkland’s London office is still in a state of flux. The internal revolution begun by Hammes and taken up by Lucas is by no means accomplished. The question is what deadline Hammes has given to London – and how much patience Chicago has.
Kirkland & Ellis declined to comment.