King & Wood Mallesons‘ (KWM) European and Middle East business is mulling a cash call months after increasing its loan facility with Barclays from £20m to £25m, as the firm strives to recover from a torrid 18 months.
EUME partners at the 2,200-lawyer firm were informed at their monthly partners meeting in June that London-based funds veteran Michael Halford is leading a review of the firm’s capitalisation in the region. One likely option is asking partners to contribute more capital as the firm moves to put its finances on a firmer footing.
Separately, the EUME business, which KWM acquired when the Asia-Pacific giant merged with SJ Berwin in November 2013, has increased its loan facility with Barclays by £5m to £25m. While the terms of the debt are not public, partners were told at a meeting in March that the revolving credit facility, which had been set to expire in July 2016, had been extended and increased.
The review of capitalisation comes after delays last year on profit distributions. The firm has since decided to move from quarterly distributions to monthly payments. Stuart Fuller (pictured), KWM’s global managing partner, told Legal Business: ‘We should run a business where we pay partners regularly. Quarterly payments are a quaint feature of UK firms.’
The move to address finances comes amid a challenging period for KWM in Europe. The firm has been struggled following a series of high-profile partner exits in the last 12 months and carried out a partnership restructuring that saw 24 partners asked to leave in March. EUME was last year the worst performing member of KWM, which operates a Swiss verein model that keeps liability and finances separate, as global revenue fell 1% to $1.02bn (KWM posted revenue growth estimated at 8% but its results are depressed in conversion to the strong dollar). While not directly comparable given the overlap in reporting periods, KWM’s EUME business generated £181.3m in revenue during the 2015 calendar year compared to £191m in 2014/15.
Just weeks after the partner restructuring was announced, a six-partner private equity team in Paris resigned for US law firm Goodwin Procter in a severe blow for KWM. The Paris team, which included Paris managing partner Christophe Digoy and big-biller Maxence Bloch, is understood to have walked out with at least £8m in annual billings. KWM has lost a number of other partners with substantial billings in the last two years.
KWM has confirmed that it has ‘written to Goodwin Procter in connection with legal proceedings by KWM against it’, rather than the Paris partners, but refused to confirm details of any possible action.
KWM has pledged to re-build its practice in France, highlighting that its profitable Paris funds team was unaffected by the Goodwin departures. Nevertheless, KWM has some way to go to demonstrate that it has steadied its course in Europe.
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