Hardly a week goes by without at least one large law firm hiring in private equity or trying to revamp their practice in some way.
This week it was White & Case that announced a new London private equity department head, while Orrick, Herrington & Sutcliffe bolstered its U.K. venture capital team. Squire Patton Boggs secured a series of European hires and Clifford Chance lured some senior people for its funds practice in New York.
The previous week Freshfields Bruckhaus Deringer made a rare lateral hire to build its London private equity practice and Ropes & Gray took a trio of U.K. partners from Fried Frank Harris Shriver & Jacobson. I could go on…
This all makes sense when considering the importance of private equity to corporate law firms. After all, buyout funds have trillions of dollars to spend, companies to refinance and sell and various other issues in between.
But there are more things law firms can do if they want to win more work in this lucrative market. Here’s a little cheat sheet highlighting a few:
Get to know the GCs
This is not as obvious as it sounds. For years, private equity clients did not have in-house lawyers and the relationships advisers had with the clients were with the individual deal-doers at each investment firm rather than with any general counsel. But times have changed. As Becky Pritchard writes in an insightful feature, most buyout firms have in-house lawyers nowadays and the largest ones—such as CVC Capital Partners—have lots. The deal executives might still choose the law firms to mandate but the general counsel often have a veto, making them key contacts. Some have even done the unthinkable and introduced formal panels.
Not everyone can advise Blackstone. And not everyone does. In fact, the largest buyout firms tend to use the same large law firms. This can make it seem like a closed club. But the industry is huge and there are enough small and mid-market buyout firms to go around. These clients aren’t bothered by directory rankings and M&A expertise, they just want advisers that have plenty of experience on similar deals. Paul Dolman, a partner at Latham & Watkins, explained: “Clients want me to be able to say ‘look in this auction, there’s X and Y private equity firm and I know exactly the approach they’re going to take on all these terms’ because we have seen them in action on the other side of the table.”
Be careful in negotiations
What private equity firms want from advisers has gradually changed over the years. No longer is a Rottweiler negotiator required. Financial sponsors want an agreeable approach because they are likely to encounter the same buyout firms in negotiations again and again. In fact, buyout partners say the market has developed to the point where most of the terms on a deal require very little negotiation at all. One private equity general counsel said law firms steeped in corporate M&A traditions often get flipped out of auctions early on because they are too difficult to deal with.
Be flexible on fees
Private equity GCs admit they push for very competitive fee rates from their advisers in some areas – such as aborted deals and employment advice. Some of it may have to be done for free. But they are happy to pay the big bucks when the M&A deals do complete or when funds are successfully raised. Billing by the hour is not ideal for either scenario. This is an industry that requires a range of alternatives.
Hire in finance as well as M&A
Finally, some top law firm partners tell me the secret way into the buyout industry is offering great legal advice on financing. This often more complex area is what a portfolio company typically needs during the time it is owned by a financial sponsor. If a law firm can handle those aspects it has such a good idea of the company’s strengths and weaknesses and what is required to support it then by the time it comes to selling the company on the owner is likely to consider it for the sale mandate as well. Private equity transactional hires are important but firms should also consider hiring in acquisition finance if they want to properly compete.