US firms increase their hold over private equity legal mandates and partner talent

04 Dec, 2014

A recent report by leading global legal recruitment boutique Fox Rodney Search has analysed why there has been an increase in US law firms winning legal mandates and partner talent, and the key points in favour of UK headquartered firms being able to counteract this trend. Highlights of this report include:

Why are US firms increasing their hold over private equity mandates and partner talent?

Through their research, Fox Rodney Search has made the following observations on why US firms are gaining such ground in the Private Equity (PE), high yield and leveraged finance areas:

  • US firms pride themselves on an almost 35-year long history of substantial high yield/leveraged finance expertise, whereas UK firms only started in the past five to ten years to set up and bolster their high yield/leveraged finance practices
  • Since high yield/leverage finance products originated from the US, US law has become the “dominant” law for these products.
  • The top tier US private equity focused firms have the loyalty of the key PE Houses in the US. As a result, the same PE Houses are following the US firms to Europe.
  • US firms have the right size, shape, flexibility and strategy to take full advantage of the global debt markets, which enables them to smoothly offer their clients the most suitable structures.
  • The Magic Circle firms have historically invested heavily in their larger corporate, investment bank and banking relationships rather than focusing on their private equity relationships. Only Clifford Chance and Ashurst are the exception to this, having focused on PE relationships early on.
  • US firms have recently been very successful at bolstering their PE/finance practices by having the ability to attract the right talent, not least because of their highly flexible compensation structures.

Can UK headquartered firms counteract this trend?

Fox Rodney Search have identified a number of points in favour of UK law firms being able to counteract this trend:

  • UK firms should take advantage of the decrease in popularity of US high yield debt financing, as this type of financing is becoming increasingly expensive
  • Despite the fact that the UK debt practices might not be as prominent as those as their US counterparts, UK firms do high yield as well as the full spectrum of US securities work. High yield can also be seen as only a small element of a deal. Whilst top notch US expertise is “cosmetically” good to have, the European market requires a different skillset and awareness.
  • US firms in London may have the US expertise, but they also have shortcomings, not least because of their leaner headcount and almost exclusive focus on corporate and banking. The US firms typically do not have the sector expertise of the UK Headquartered firms. Increasingly, private equity deals are focused on highly regulated sectors, requiring sector expertise.
  • Investors such as Canadian Pension funds and Sovereign Wealth funds who actively compete on private equity auctions are not reliant on US-style financing. Given their focus, for example, on regulated industries and trophy real estate assets, such organisations are well-suited to the full service London or global firms

UK headquartered firms need to exploit and market the above USPs in order to counteract and respond to the assertion on the part of US firms that they are better placed to execute private equity/high-yield and leveraged finance mandates.

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