Legal Business

Deal watch: Busy year-end as Japanese group buys Swiss power grid and Malaysian funds invest in Battersea

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Dealwatch Addleshaw GoddardBaker McKenzieFreshfields Bruckhaus DeringerLinklaters
Deal watch: Busy year-end as Japanese group buys Swiss power grid and Malaysian funds invest in Battersea

City deal teams are having a busy run-up to Christmas, with Baker McKenzie, Freshfields Bruckhaus Deringer, Addleshaw Goddard and Linklaters leading on two multibillion-dollar deals.

Bakers’ London private equity head David Allen and corporate partner Jannan Crozier led a team advising Hitachi as the Japanese conglomerate acquired 80.1% of Swiss giant ABB’s power grid division for around $6.4bn.

Hitachi’s largest ever acquisition, with an enterprise value of $11bn including net debt, saw Freshfields’ M&A partners Piers Prichard Jones and Stephen Hewes advise ABB, which will retain control of 19.9% of a business spread across more than 100 countries and employing over 130,000 people.

‘The impact of this deal will be felt for generations to come,’ Crozier told Legal Business, pointing to the ability of the Japanese group to combine its technology with the infrastructure acquired from ABB and bring energy to areas of the world where it is more difficult to get to. ‘They will be able to revolutionise the way power is brought to consumers.’

Swiss firm Homburger’s M&A partners Claude Lambert and David Oser also acted for ABB, which is looking to simplify its business structure and focus on automation technology.

The Swiss group is able to require Hitachi to buy the remaining 19.9% of the power grid business in three years’ time. Under a so called ‘put and call’ provision, Hitachi will also be able to require ABB to sell its remaining stake in the business.

‘In the short term we will provide the maximum stability to the company through this joint venture, but in three years’ time we will have the flexibility to do that,’ Crozier said. The Bakers team was supported by Tokyo partners Akifusa Takada and Yutaka Kimura.

The acquisition caps off a busy 2018 for Bakers, which was active on numerous large deals over the last few months. Earlier in December the firm acted for Unilever on its £3.1bn acquisition of malted drink brand Horlicks from GlaxoSmithKline.

Elsewhere, the redevelopment of Battersea Power Station in London provided rich pickings for a trio of City firms as Malaysia’s asset manager Permodalan Nasional Berhad and state pension fund The Employees Provident Fund took a £1.6bn stake in the £9bn project.

Addleshaws’ real estate partner Simon Tager led the team acting for Battersea Power Station Development Company on the sale of the commercial assets of phase two of the project, including a six-acre site hosting the former coal power station on the south bank of the river Thames. Addleshaws’ Leona Ahmed, Luke Harvey, Hugh Lauritsen and Lee Sheldon also worked on the deal, while the buyers instructed Linklaters’ real estate partner Patrick Plant.

Phase two, which will include Apple’s new UK headquarters, is due to complete by the end of 2020.

marco.cillario@legalease.co.uk

Legal Business

LLP accounts: Linklaters posts fall in profits as top earner doubles income at Macfarlanes

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Financial results 2017/18 LinklatersMacfarlanes
LLP accounts: Linklaters posts fall in profits as top earner doubles income at Macfarlanes

Operating profits at Linklaters dipped 1% to £472.3m, while Macfarlanes’ highest-earning partner brought home almost £4m in 2017/18, the two firms’ LLP accounts showed this week.

In a mixed bag of financial results, the fall in profits at Linklaters came despite a 6% rise in turnover to £1.51bn. The operating profit figure reported is more than £200m lower than the £676.2m pre-tax profit the firm posted in July .

Linklaters said the discrepancy was because the published accounts consider as salaried employees the firm’s 150 partners that are not LLP members. The number of equity partners was down by two on last year to 310, according to the filing. Last year’s accounts had shown a 9% rise in operating profits to £476.2m in 2016/17.

The firm saw a 5% increase in its staff cots to £739m this year, up from £705m last year, as the number of lawyers rose by 30 to 2,487 and business support staff by 41 to 2,190. The share of profit available to the firm’s 13 executive committee members rose slightly however to £21.6m from £20.8m.

Linklaters has the lowest profit per equity partner (PEP) of the Magic Circle at £1.54m. Discussing the financial results in July, managing partner Gideon Moore said he was happy with the firm’s financial performance: ‘The increase in revenue was good and it’s an indication that the clients are supporting what we are trying to do’.

On the weakened profitability, he pointed to significant investments made by the firm in a number of areas, including the joint operations agreement with Shanghai firm Zhao Sheng.

Meanwhile, Macfarlanes’ highest earner took home £3.86m in 2017/18, a 90% increase on £2m the previous year. According to the accounts, the figure includes payments on retirement to a partner who is not a member of the senior management team.

Operating profits rose 24% to £106.27m amid a 20% turnover growth to £201.5m in a standout year for one of the most profitable operators in the City. The strong increase in profits came despite staff cost rising 12% to £59.3m with the firm growing its headcount by 25 to 585. The remuneration available for key management group members was £4.55m, up 10% from £4.11m in 2016/17.

In July Macfarlanes posted a PEP of £1.74m , up 26% and higher than most of the Magic Circle.

Marco.cillario@legalbusiness.co.uk

Legal Business

Banking and finance focus: Back to the future

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Finance Allen & OveryClifford ChanceLinklaters
Banking and finance focus: Back to the future

‘The truth is no-one’s got the faintest idea what finance practices will look like in the future,’ shrugs Tony Bugg, Linklaters’ head of banking, when asked to describe a top City finance practice in 2030. Of the dozens of London finance chiefs and partners to whom Legal Business posed the question, Bugg’s take is at least one of the more candid.

If the last decade is any guide, the finance world will be girding itself for more wrenching change. The post-banking crisis environment has seen a dramatic increase in regulation and oversight of banks and helped encourage the growth of institutions filling the void as senior lenders retrench.

Legal Business

‘No blueprint’: Looking back at Lehman’s wind-up

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Finance Linklaters
‘No blueprint’: Looking back at Lehman’s wind-up

Lehman Brothers International (Europe) (LBIE)’s 5,500 employees left the London office at 25 Bank Street on Friday 12 September 2008 expecting to return on Monday morning to their weekly routine. As did their colleagues in the rest of the world.

Not that life had been easy up to that point. Global financial turmoil had been going for around a year and Lehman had just posted a $3.9bn third-quarter loss amid the subprime mortgage crisis. Yet, the sense was that the bank founded in 1850 would be bought out by either Barclays or Bank of America, despite the US government’s resistance to bailing it out.

Legal Business

Linklaters finishes tech jigsaw with hire of Ashurst’s global IT head

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Innovation Linklaters
Linklaters finishes tech jigsaw with hire of Ashurst’s global IT head

Linklaters has bolstered its technology clout with the hire of Ashurst’s well-regarded head of global IT, Bruna Pellicci.

Pellicci becomes the Magic Circle firm’s chief technology officer (CTO) after more than 11 years at Ashurst, five of which were as the firm’s global IT director.

She will report to Linklaters’ global chief operating officer and director of technology, Matt Peers, and have responsibility for the firm’s technology initiatives and information security. Linklaters has a 250-strong IT team.

Peers, who took on his role in May, told Legal Business: ‘Bruna is established in the legal field, but more than that she has tried to push the legal field. She has been involved in a lot of transformative activity and having someone who is good at driving change initiatives always adds horsepower to the firm.’

Peers believed Pellicci could be the last significant technology hire the firm needs: ‘On the innovation side we had enough thought innovation, what we were missing is making these ideas a reality. Bruna completes our team, she is the last piece of the jigsaw.’

Linklaters also has an ongoing relationship with tech start-up Eigen Technologies, which earlier this year raised £13m. Headed by one of the firm’s former advisers, Lewis Liu, Linklaters and Eigen developed and launched data extraction tool Nakhoda in 2017.

Pellicci’s move has been a long time coming after Ashurst hired CTO Noel Jordan in April as her replacement. It also comes as firms increasingly look to technology specialists to respond to client pressures to re-evaluate delivery processes and costs.

It is also the latest in a string of technology related hires this year, with Freshfields Bruckhaus Deringer hiring Charlotte Baldwin in January and Ashurst making a significant play by re-hiring Christopher Georgiou after he left to head up Fieldfisher’s alternative legal services arm, Condor.

For more on tech and innovation at the UK’s 12 largest firms, see ‘Law firm tech: Turning the lights on’.

thomas.alan@legalease.co.uk

Legal Business

Linklaters sets sights on future talent as it raises trainee and NQ salaries for second time

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Trainee retention Linklaters
Linklaters sets sights on future talent as it raises trainee and NQ salaries for second time

Linklaters has announced the second increase in its trainee and newly qualified (NQ) salaries this year, with the latter now bringing home £83,000 in basic pay.

NQs have seen their basic pay increase by £2,000 since the firm last increased its rates in May, while trainees in year one have become the highest paid in the Magic Circle after remuneration rose by £3,000 to £47,000. Second-year trainees have seen salaries grow by £3,500 to £52,500.

Linklaters now matches Allen & Overy (A&O)’s NQ rates at £83,000, higher than Slaughter and May’s £80,000.  Freshfields Bruckhaus Deringer pays NQs £85,000 and Clifford Chance (CC) boosted NQ pay to up to £91,000 including bonuses in August. Linklaters did not disclose the size of its own bonuses.

However, first year trainees on year one at Silk Street will now bring home more than their peers at other Magic Circle firms, with their salaries surpassing CC’s £46,600 and the £45,000 at Freshfields, Slaughter and May and A&O.

Meanwhile Linklaters’ trainees in year two will also be among the highest earners in their peer group, their salary now matching CC. Meanwhile, Freshfields’ and Slaughters’ second year trainees bring home £51,000, A&O £50,000.

The raise in trainee and NQ rates comes after a mixed bag of financial results for Linklaters, which had the largest increase in revenue in its peer group, up 6% to £1.52bn, but saw profits per equity partner stay flat at £1.54m.

Linklaters, A&O, Freshfields and CC all increased their US associate salaries earlier this year, with Linklaters’ bringing wages to the same level as Cravath, Swaine & Moore and Quinn Emanuel Urquhart & Sullivan, which range from $190,000 to $340,000.

marco.cillario@legalbusiness.co.uk

Legal Business

Deal watch: Rich pickings for Links as insurance and education sectors mark busy autumn for City elite

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Clifford ChanceLinklatersSlaughter and May
Deal watch: Rich pickings for Links as insurance and education sectors mark busy autumn for City elite

It has been a busy few weeks for Linklaters’ transactional team as the firm scooped spots on two multibillion pound deals, in the insurance and education sectors respectively.

Corporate partners James Inglis and Nick Rumsby joined Magic Circle rivals Clifford Chance (CC) and Slaughter and May as US insurance broker Marsh & McLennan agreed to acquire the entirety of UK listed rival Jardine Lloyd Thompson (JLT) for £4.9bn.

Slaughters’ senior partner Steve Cooke, corporate partner Richard Smith and finance expert Ed Fife led the team advising Marsh & McLennan in a transaction that Smith described as ‘a vote of strong support for the UK’.

Linklaters advised Jardine Matheson, the 40% shareholder of JLT, which is backing the transaction alongside JLT’s board. The public shareholders will meet to approve the transaction next month.

CC’s corporate partners Tim Lewis and Katherine Moir advised JLT.

‘What Marsh & McLennan and JLT have shown is that it is possible to create a very successful business in this market,’ Smith told Legal Business. ‘These companies have been the best performers among the competition: that’s why bringing them together makes sense.’

Long-standing friend firm from across the pond, Wachtell, Lipton, Rosen & Katz, worked alongside Slaughters advising on the US side of the deal, led by Dan Neff and Greg Ostling. Davis Polk & Wardwell advised on the financing.

Meanwhile, Linklaters’ sponsor partners Alex Woodward and David Martin acted alongside Clyde & Co on investment firm Jacobs Holding’s £2bn acquisition of private education group Cognita.

‘This is a landmark transaction for the education sector, which demonstrates the increasing prominence of global school groups and their attractiveness to investors,’ said Clydes’ co-head of education Ross Barfoot, who led the team alongside fellow corporate partner Simon Gamblin. A team of 60 lawyers worked on the transaction across Clydes’ London, UAE, Madrid, Sao Paolo, Hong Kong and Singapore offices.

Linklaters’ leveraged finance partners Ed Aldred and Dan Gendron led on the debt financing side and tax partner Mavnick Nerwal also supported on the deal.

Established in 2004, Cognita operates more than 70 schools across eight countries in Europe, Asia and Latin America, employs 7,000 teachers and support staff and educates more than 40,000 children.

marco.cillario@legalease.co.uk

Legal Business

Deal watch: Magic Circle scoops £300m Funding Circle IPO as Linklaters advises on £2bn wind farm financing

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Corporate Linklaters
Deal watch: Magic Circle scoops £300m Funding Circle IPO as Linklaters advises on £2bn wind farm financing

Freshfields Bruckhaus Deringer and Linklaters have scored lead mandates on the proposed initial public offering (IPO) of small business lender Funding Circle, while Linklaters advised on the £2bn financing of the Triton Knoll wind farm.

London-based start-up Funding Circle, which provides a loan platform for SMEs in the UK, US, Germany and the Netherlands, announced today (3 September) its intention to issue at least 25% of its share capital to raise around £300m.

Freshfields, led by capital markets partners Mark Austin and Doug Smith, are acting for Funding Circle, while Linklaters’ corporate partner John Lane and capital markets partner Pam Shores are advising joint co-ordinators and bookrunners Bank of America Merrill Lynch, Goldman Sachs, Morgan Stanley and Numis Securities.

Funding Circle was founded in 2010 and has since lent more than £5bn of loans, of which more than £1bn was lent in the first half of 2018. The company has opened up small business lending as an investment asset class to a range of investors including retail, banks, asset management companies, insurance companies, government-backed entities and funds.

Projected investor returns for loans originated in 2017 are expected to range between 4.6%-7.6% across Funding Circle’s geographies, while the company recorded revenue of £94.5m for the year ended 31 December 2017: an 86% uptick on the £50.9m it reported in 2016.

Freshfields’ Mark Austin told Legal Business that the IPO was another shot in the arm for the London listing market, coming so soon after last week’s announcement that upmarket car maker Aston Martin was planning to float.

‘Tech companies planning IPOs can go over to New York, so it’s a good thing that this great home-grown company, which will be another tech unicorn listing, has chosen London instead.’

This is the second London float to be announced since new rules governing IPOs were brought into force on 1 July 2018, requiring unconnected analysts to be involved in the transaction and for the registration document to be published before the prospectus.

While the market is relatively buoyant at present, few advisers are expecting deal activity to continue strongly into next year.

Noted one corporate partner: ‘These deals are great for London considering the geopolitical situation at the moment with Brexit, but I think H1 2019 will be quieter. I can’t see investors flocking when there’s so much uncertainty.’
Meanwhile, Linklaters acted as the adviser to the sponsors of the 860MW Triton Knoll offshore wind farm which last Friday (31 August) made it over the line on a financial close that will see £2bn injected into the UK project.

The Linklaters team was led by partners Richard Coar and John Pickett. The firm also recently advised Innogy Renewables UK on a deal to sell a total 41% of its interest in the project to a subsidiary of Electric Power Development, J-Power (25%), and to a subsidiary of Kansai Electric Power (16%).

A consortium of 15 banks is set to provide £1.71bn of debt for the wind farm, which will be built off the coast of Lincolnshire.

The lenders are: ABN AMRO Bank, Banco Santander, Bayersische Landesbank, BNP Paribas, Commerzbank Aktiengesellschaft, ING Bank, KfW IPEX-Bank, Landesbank Baden-Württemberg, Landesbank Hessen Thuringen Girozentrale, Lloyds Bank, MUFG Bank, National Westminster Bank, Natixis, Skandinaviska Enskilda Banken, Sumitomo Mitsui Banking Corporation.

MUFG also acted as financial adviser on the deal.

Coar commented: ‘The success of Triton Knoll clearly demonstrates that the appetite of both global equity investors and commercial banks in the UK offshore wind sector remains strong. There is a healthy portfolio of both greenfield and brownfield offshore wind assets in the UK and across the rest of Europe and the ability of the sector to continue to attract both existing and new classes of capital at increasingly competitive rates will be key to its continued success.’

nathalie.tidman@legalease.co.uk

Legal Business

Linklaters fails to keep pace up with profit growth as revenue breaks £1.5bn

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Financial results 2017/18 Linklaters
Linklaters fails to keep pace up with profit growth as revenue breaks £1.5bn

Linklaters has posted a mixed bag of financial results as revenue grew by a solid 6% to pass the £1.5bn mark but profits have failed to keep pace, increasing by just 2%.

As the last of London’s big four to announce its 2017/18 results, the revenue increase to £1.52bn means the Silk Street firm is the fastest-growing of the pack in sterling terms this time around, adding £85m to its top line. But profits per equity partner (PEP) rose to just £1.54m as the firm failed to translate the revenue growth into a comparable increase in net income.

Pre-tax profits stood at £676.2m, up 2% in sterling terms on last year’s £664.4m. Financial performance is less flattering on a constant currency basis, with revenues and profits up by 5% and 1% respectively.

However, managing partner Gideon Moore told Legal Business the mood within the firm is upbeat: ‘I was very pleased with the financial performance. The increase in revenue was good and it’s an indication that the clients are supporting what we are trying to do.’

He added he was particularly happy about being able to post a solid revenue growth in the first year since the firm’s strategic overhaul, which increased the focus on team performance over individual metrics. He also said the performance was consistent across the firm’s global network.

The good news for the firm was that revenue has grown faster than last year, when it was up just 2% like-for-like to £1.44bn but PEP growth was much stronger, up 8% to £1.51m.

On the weakened profitability this year, Moore pointed to significant investments made by the firm in a number of areas, including the joint operations agreement with Shanghai firm Zhao Sheng .

On the work front, Linklaters can certainly list a number of achievements in the past year. The firm acted on several big mandates, including the £6bn sale of Unilever’s spreads business to KKR , the £3bn Sainsbury’s-Asda merger  and Bain Capital’s $18bn acquisition of Toshiba Memory .

It also pulled off some significant European lateral hires, including Latham & Watkins’ co-head of investment funds Tom Alabaster in London , Allen & Overy’s veteran Neil George Weiand in Frankfurt  and Italian rainmaker Roberto Casati in Milan.

Overall, the firm did not see significant change to its headcount in the past financial year, with the total number of lawyers up by 14 to 2,720 and the number of equity partners flat at 440 compared to last year’s 441. Total partner number was up by five to 460.

Yet what makes the results less pleasing for the firm is the fact that its PEP growth compares unfavourably to City rivals Freshfields Bruckhaus Deringer and Clifford Chance, which following similar growth in revenues recorded a 12% rise to £1.734m and a 16% hike to £1.596m  respectively.

A&O’s growth was also less spectacular, with the firm hiking both revenue and PEP by 4%, but on a whole, this year’s results mean Linklaters’ PEP remains the lowest within the Magic Circle.

With leading US players continuing their advance and a number of mid-tier operators posting an impressive set of results, it looks increasingly clear that the booming transactional activity of late is if anything reducing the gap between the London elite and a number of fast-growing UK players.

Marco.cillario@legalbusiness.co.uk

Legal Business

Linklaters and A&O join Magic Circle peers in associate salary race to attract US talent

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Associates Allen & OveryLinklaters
Linklaters and A&O join Magic Circle peers in associate salary race to attract US talent

Linklaters and Allen & Overy (A&O) have joined Magic Circle peers Freshfields Bruckhaus Deringer and Clifford Chance to hike associate salaries in the US as competition to recruit top-flight lawyers heats up.

A&O said today (28 June) it would pay US associates a starting salary of $190,000 rising to $340,000 for associates in their eight year. The salary rises to $350,000 for lawyers in their ninth year and for senior associates.

A spokesperson for Linklaters also confirmed that its US associate remuneration will be at the same level of Cravath, Swaine & Moore and Quinn Emanuel Urguhart & Sullivan, which range from $190,000 to $340,000.

The move follows Freshfields last week announcing it would match the rates set by Milbank Tweed Hadley & McCloy two weeks previously, with Freshfields’ US associates now starting on $190,000 and rising to $330,000 in their eighth year.

Those salaries are slightly below those set by CC and now matched by Linklaters and A&O, which will see senior associates paid $350,000. Meanwhile, CC and A&O have implemented Cravath-matching summer bonuses starting at $5,000 for junior lawyers rising to $25,000 at the more senior end.

The latest pay rises come as City firms wrestle with fee pressure from core blue-chip clients, while proactive US firms continue to attract Magic Circle talent and inflate the market rate for the most sought after deal lawyers. With good growth predicted for Magic Circle firms this year, the associate pay increases could help steer some of the best junior lawyers in the direction of the established City players as US firms continue to stretch London salaries.

nathalie.tidman@legalease.co.uk