A small team of quality corporate lawyers ensures Macfarlanes a role on some of the best deals. But, writes Saira Zaki, its relatively low volume of deal flow makes it vulnerable to stock market fluctuations.
There is nothing magical about Macfarlanes’ strategy, except its purity. The firm’s success can be put down to it having a relatively small team of quality corporate lawyers, a concise list of solid corporate clients and a strong referral network.
This network spans investment banks, the magic circle and some of the best foreign firms, particularly in France, where it works with Bredin Prat, and the US, where it has strong links with Kirkland & Ellis.
This combination is the driving force behind Macfarlanes’ record profits this year, which jumped by 36% to £715m. Of a total turnover of £60m, the firm’s corporate department contributed 55%, or £33m.
Among its top primary corporate clients are advertising and communications company Cordiant, Allders and Virgin. Secondary advice is given to a raft of clients including Vivendi.
As for banking referrals, the firm is close to Royal Bank of Scotland, Barclays, Hawkpoint and some of the smaller players, including West LB Trade Finance and Rheinahyp.
The firm’s most active clients last year included Cordiant and Pernod Ricard. But the firm also bagged a string of new business including deals from Alchemy Partners, which it won in a beauty parade at the expense of Nabarro Nathanson, and Saint Gobain, the French chemicals and construction company.
It advised Saint Gobain on its £1.2bn acquisition of Meyer International, having picked up the client following a recommendation by Bredin Pratt.
Major deals of the last year include a role as an adviser on the £20bn Lloyds TSB deal and acting for Pernod Ricard on its £5bn joint bid with Diageo to buy Seagram’s wine and spirits business. The firm also acted for Cordiant on its £459m acquisition of US-based Lighthouse Global Network as well as advising Community Hospitals on its £237m sale to Capio.
These headline transactions account for £25.6bn worth of deals alone and help explain why Macfarlanes can count itself as a true sparring partner of the magic circle.
In the Pernod deal, for example, the firm acted opposite Slaughter and May, Diageo’s advisers. And it advised Matheson Bank opposite Linklaters on its sale to Bank of NT Butterfield.
Looking beyond the headline deals, a sector-by-sector analysis of its deal flow, courtesy of Mergermarket, shows the firm has been advising on a good spread of clients operating in the leisure, services, financial services, media and computer services fields.
In the first half of 2001, the firm advised on 18 deals worth £20.7bn – £12.3bn more in value than the same period in 2000. The table was, however, distorted by Macfarlanes’ role as an adviser on Lloyds TSB’s £20bn bid for Abbey National, which was subsequently blocked on competition grounds.
But the job, advising Lloyds’ financial advisers JP Morgan, was not just important in terms of its size. It was also a demonstration of client satisfaction.
The two sides’ relationship was cemented two years ago when the firm advised JP Morgan as financial adviser to NatWest when it was swamped by hostile bids.
Macfarlanes has a well earned reputation for keeping its clients happy. After all, who can remember the last time the firm got dumped by a long-standing client?
Nevertheless, a more accurate picture of how the firm is coping with the slowdown in the first six months of this year emerges if the Lloyds deal is stripped out of the figures. Without the deal, Macfarlanes would have handled £900m worth of deals – £7.5bn less than in the same period last year, according to Mergermarket.
The firm would also have slipped a long way down the rankings for European M&A from its exalted ninth place.
Certainly the relatively low volume of its deal flow – 17 compared with Clifford Chance’s 94 – makes it vulnerable to such fluctuations, especially at a time when most of its rivals are investing heavily in building their European capability.
In keeping with its small is beautiful philosophy, the firm has resisted the temptation to follow its rivals into Europe.
Earlier this year, however, it took the significant strategic step of formalising its long-standing relationship with Munich-based Noerr Stiefenhofer Lutz.
The undoubted driver behind the ‘best friends’-type deal was the need to shore up the firm’s European private equity practice in the face of competition from the likes of SJ Berwin and Ashurst Morris Crisp, which have their own offices in Germany.
Macfarlanes has a strong private equity practice. As well as Alchemy Partners, other private equity clients include the Royal Bank Private Equity, which the firm advised on the £441m buy-out of Britax, and 3i.
Partner Charles Martin concedes that part of the rationale for the Noerr deal was the need to secure capacity in Germany for those of its clients that are doing deals there.
But, while he acknowledges that the firm needs “a greater share of Ftse 100 and Fortune 500 clients”, he stresses that the firm is not about to abandon its single office strategy.
“There will always be a market for a first class domestic firm,” he says. “Cravath Swaine & Moore is a domestically focused firm in the US and that hasn’t stopped it from getting the value work. So why can’t we?”
