Restructuring now the hottest game in town
The M&A boom is over and law firms must adapt — but that could be bad news for associates
James Rossiter

Waiting for a table at a popular roof-top restaurant this week, I bumped into one of London's most prolific private equity lawyers. I asked him how busy he was. He smiled and replied that he had virtually nothing on.

For the past five years, "Mr Private Equity" has been hard to pin down even for a breakfast meeting without four months notice. Even then, meetings were pulled at the last minute as yet another all-night deal-breaker turned into a two-day marathon.

I asked whether, given the recent trouble in the credit markets, his firm was gearing up for plenty of restructuring work. Mr Private Equity said: "I don't think there will be plenty of businesses going bust. But there will be plenty of re-financings."

His answer speaks volumes about what corporate and banking lawyers need to do to stay on top of any sea changes in work flow: adapt or lose out. Takeover work may be on the wane but restructuring in all its guises is set to come back into fashion.

Back in late 1999, just as the last boom in mergers and acquisitions was reaching its zenith and high-yield bond offerings went into overdrive, several of the larger City law firms started gearing up for more insolvency work. This year, it was possible to detect a similar trend emerging even before the credit crunch put a number of multi-billion-pound takeovers on hold.

Internal rumblings at Clifford Chance suggest that the firm's seven-partner restructuring team has already put in requests from other departments for extra manpower. Mark Hyde, head of Clifford Chance's restructuring team, says: "There is clearly anticipated to be an upturn in the market for restructuring and insolvency work but the avalanche certainly has not come yet." The emphasis can be placed on yet.

That Hyde talks about insolvency — still a taboo subject for the private equity deal-maker — in the same breath as company restructurings is an indication of which direction Clifford Chance think refinancings will go.

He adds: "The assumption is the wall of money will dry up and when refinancing is not available those companies may be forced into restructuring with existing lenders as opposed to refinancing with those lenders."

Expectations of more restructuring work on the horizon have also been raised by a few high-profile moves in the investment banking world in the past six months. First, Blackstone poached Martin Gudgeon from Close Brothers, where he was head of restructuring. Then NM Rothschild named Andrew Merrett as its new head of debt restructuring.

In March, Goldman Sachs announced it had appointed Andrew Wilkinson, managing partner and head of corporate restructuring at US law firm Cadwalader Wickersham & Taft. His appointment, months before the credit cruch took hold, triggered speculation that Goldman was expecting a wave of insolvencies.

He joined forces with Lachlan Edwards, NM Rothschild’s former head of restructuring, who joined Goldman last September to launch the Wall Street bank's European restructuring team.

Goldman insisted that Wilkinson's move was merely part of its desire to help companies be more efficient with their balance sheets, denying at the time that it foresaw an upswing in corporate failures. Either way, given the change of sentiment in the corporate world, Wilkinson's track record in sorting out telecoms refinancings and his involvement in the Eurotunnel administration and a host of bond holder-led company restructurings now looks timely.

Over the past few weeks Goldman has announced it is raising a $1.5 billion debt fund to take advantage of corporate credit trading under par. Lehman wants to raise a $3 billion fund chasing the same type of debt. Globally, the wheels seem to be rapidly being put in motion for the sort of large-scale refinancings and restructurings Clifford Chance's Hyde envisages.

Law firms whose profits soared last year thanks to takeover work who now want to catch the next wave of restructuring work may want to take a leaf out of the accountancy guide to business planning. Deloitte UK's senior partner John Connolly, delivering another strong year of trading last month, had already calculated his entire firm's exposure to private equity deals. Thoughts of a potential drought were clearly on his mind.

Connolly calculates 10 per cent of Deloitte's UK group revenue is directly attributed to private equity, while fee income relating to transactions generally accounts for 15 per cent of income. He is, however, forecasting a big pick-up in consultancy work to help on work-outs and restructurings.

Deloitte has the benefit of huge division of ex-Anderson consulting partners who are up-and-running on restructuring work. Law firms could do worse than investing in similar resources.

Those law firms who do miss out on corporate recovery work may need to start thinking hard about a restructuring of their own. When I did finally get to my table at that City restaurant, I dined with the heads of a sizeable London law firm, where talk quickly turned to how they would cope with a downturn in M&A work.

The managers of this law firm said they would have no hesitation shaving a few highly-paid associates with two or three years qualification under their belt. They expect other similar-sized law firms will be glad to follow suit.

Partners, it seems, are beginning to tire of having to give in to young associates' requests for a year out travelling mid-career with the guarantee of a job held safe until they return. For over a decade, it has been an employee's market. That may be about to change. Perhaps that warning will encourage a few of this year's batch of newly-qualified lawyers to think hard about a career in insolvency.


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