Malcolm Glazer ruffled a hell of a lot of feathers when he took Manchester United football club private last year, but for law firms in the City of London, the fuss extended beyond the allegiances to their team and towards a new breed of corporate clients: the hedge funds.
While it had been mooted for some time that the hedge funds were going to start behaving like private equity funds – increasing their lock-ups and taking control of companies in search of higher returns – this was the first sizeable example. And the most riling thing for the City’s law firms? The hedge funds didn’t instruct an M&A law firm. They didn’t even instruct a private equity law firm. Instead they went to arguably the strongest finance firm on this side of the Atlantic, calling on Andrew Ballheimer at Allen & Overy.
Ballheimer has since worked for the same bunch of funds, including Och-Ziff and Perry Capital, on their leveraged buy-out of UK clothing retailer Peacocks, the first such deal in the UK.
He says that hedge funds are now looking at nearly every major M&A deal on the blocks. “Historically, one would have private equity clients which could only invest in the equity piece,” he says. “As a result of the increased participation of hedge funds in the M&A scene, you now have clients which can invest throughout the entire capital structure. So if the economics of a particular aspect fail to attract, they can invest in another tranche or a combination of tranches.”
A&O has been acting for investment banks and financial institutions since as long as anyone can remember, and it has a financial services and funds practice that few can rival. It may not do the fund formation volume of law firms like Dechert or a Simmons & Simmons, but when it comes to complex capital markets structures, derivatives and things like collateralised debt obligations, A&O is one of the best.
That’s how the firm has approached hedge fund work – with a cradle to grave offering that stretches from start-up, seed capital and structuring, through regulation and into all types of trading, including restructuring and leveraged acquisitions.
“I think A&O is almost uniquely placed for this work,” says Ballheimer, “because what the hedge funds need in terms of advice is a combination of high quality M&A skills and high quality finance skills. There are few firms that tick both of those boxes.”
He adds, “If hedge funds are leading or co-leading M&A transactions, they need corporate advice. With that, however comes the need for finance advice. As hedge funds are now heavily engaged in the leveraged buy-out market, as active providers of subordinated debt such as PIK securities, it is essential to be able to provide excellent banking advice.”
Of course, A&O is not the only law firm alive to this new marketing opportunity, but the traditional private equity law firms have to some extent been disappointed by the fact that the two asset classes are so often competing for the same prizes. In many of the deals, hedge funds are buying a stake once the deal has been announced, by which time, of course, most of the private equity law firms have already been hired.
Still SJ Berwin, which has a phenomenal asset management practice advising on formation and regulation, amongst other things, is targeting M&A work for the hedge fund industry. The firm is one of the leading private equity players: “We see this as a broader practice, with huge interaction between hedge funds and private equity, for example, and real estate,” says SJ Berwin partner Bruce Gardner. “We have clients that approach us because they want expertise in private equity and in hedge funds, and that’s not particularly common in the City.”
Elsewhere it is often the London offices of American law firms that are targeting the corporate work to advise these funds active in M&A, firms like Shearman & Sterling, McDermott Will & Emery, and Milbank Tweed Hadley & McCloy.
Of the top-drawer hedge funds doing private equity-style deals, Cerberus Capital Management is working with Milbank, Fortress Investment Group is using London’s Linklaters and the local practice of New York’s Weil Gotshal & Manges, and Oaktree Capital Management is using Bingham McCutchen and Cadwalader Wickersham & Taft, two US firms that have made their names in Europe through advising bondholders on distressed debt deals. William Charnley is the London senior partner for Chicago law firm McDermotts, and though he declines to name his clients, he is understood to be working for Och-Ziff and Polygon Investments looking at buy-outs. “If there’s a takeover bid announced,” he says, “the hedge funds will investigate it and see if there’s any chance of dissent emerging on one side or the other. So we help on that. The other thing is where they effectively start making private equity investments.”
He also advises the funds that engage in active governance – effectively telling public companies how to run their businesses by throwing their weight around as shareholders. Back in 2004, for example, Polygon put pressure on British Energy, in which it had a 5.6% shareholding, by teaming up with other shareholders and calling an EGM to derail management attempts at a restructuring deal.
Charnley believes many of the top UK law firms have missed the boat to get corporate work for these new clients. “You need to be able to be responsive and know what you are talking about. And a lot of the big firms eschewed it to start off with because they didn’t think it was worth doing, and now they are all getting involved.”
McDermott brings the US perspective to the mix, with so many of the deals requiring US securities expertise, but also does regulatory, fund formation and tax work for the alternative investment managers on both sides of the pond.
Shearman & Sterling’s work in London includes advising CQS backing Varleigh on its acquisition of Medical Information Professional Systems, and working with Och-Ziff as an investor in Lornamead’s acquisition of the Yardley brands from Procter & Gamble.
It’s a marketing opportunity for law firms that only looks like getting hotter.
With hedge funds including Eton Park Capital Management piling into P&O shares when its takeover battle kicked off, Sowood Capital Management locking horns with private equity firm Apax in the war for control of Tommy Hilfiger, and Fortress successfully buying German property company Gagfah for $3.5bn, the law firms that ingratiate themselves with the managers will surely be onto a winner.
While it had been mooted for some time that the hedge funds were going to start behaving like private equity funds – increasing their lock-ups and taking control of companies in search of higher returns – this was the first sizeable example. And the most riling thing for the City’s law firms? The hedge funds didn’t instruct an M&A law firm. They didn’t even instruct a private equity law firm. Instead they went to arguably the strongest finance firm on this side of the Atlantic, calling on Andrew Ballheimer at Allen & Overy.
Ballheimer has since worked for the same bunch of funds, including Och-Ziff and Perry Capital, on their leveraged buy-out of UK clothing retailer Peacocks, the first such deal in the UK.
He says that hedge funds are now looking at nearly every major M&A deal on the blocks. “Historically, one would have private equity clients which could only invest in the equity piece,” he says. “As a result of the increased participation of hedge funds in the M&A scene, you now have clients which can invest throughout the entire capital structure. So if the economics of a particular aspect fail to attract, they can invest in another tranche or a combination of tranches.”
A&O has been acting for investment banks and financial institutions since as long as anyone can remember, and it has a financial services and funds practice that few can rival. It may not do the fund formation volume of law firms like Dechert or a Simmons & Simmons, but when it comes to complex capital markets structures, derivatives and things like collateralised debt obligations, A&O is one of the best.
That’s how the firm has approached hedge fund work – with a cradle to grave offering that stretches from start-up, seed capital and structuring, through regulation and into all types of trading, including restructuring and leveraged acquisitions.
“I think A&O is almost uniquely placed for this work,” says Ballheimer, “because what the hedge funds need in terms of advice is a combination of high quality M&A skills and high quality finance skills. There are few firms that tick both of those boxes.”
He adds, “If hedge funds are leading or co-leading M&A transactions, they need corporate advice. With that, however comes the need for finance advice. As hedge funds are now heavily engaged in the leveraged buy-out market, as active providers of subordinated debt such as PIK securities, it is essential to be able to provide excellent banking advice.”
Of course, A&O is not the only law firm alive to this new marketing opportunity, but the traditional private equity law firms have to some extent been disappointed by the fact that the two asset classes are so often competing for the same prizes. In many of the deals, hedge funds are buying a stake once the deal has been announced, by which time, of course, most of the private equity law firms have already been hired.
Still SJ Berwin, which has a phenomenal asset management practice advising on formation and regulation, amongst other things, is targeting M&A work for the hedge fund industry. The firm is one of the leading private equity players: “We see this as a broader practice, with huge interaction between hedge funds and private equity, for example, and real estate,” says SJ Berwin partner Bruce Gardner. “We have clients that approach us because they want expertise in private equity and in hedge funds, and that’s not particularly common in the City.”
Elsewhere it is often the London offices of American law firms that are targeting the corporate work to advise these funds active in M&A, firms like Shearman & Sterling, McDermott Will & Emery, and Milbank Tweed Hadley & McCloy.
Of the top-drawer hedge funds doing private equity-style deals, Cerberus Capital Management is working with Milbank, Fortress Investment Group is using London’s Linklaters and the local practice of New York’s Weil Gotshal & Manges, and Oaktree Capital Management is using Bingham McCutchen and Cadwalader Wickersham & Taft, two US firms that have made their names in Europe through advising bondholders on distressed debt deals. William Charnley is the London senior partner for Chicago law firm McDermotts, and though he declines to name his clients, he is understood to be working for Och-Ziff and Polygon Investments looking at buy-outs. “If there’s a takeover bid announced,” he says, “the hedge funds will investigate it and see if there’s any chance of dissent emerging on one side or the other. So we help on that. The other thing is where they effectively start making private equity investments.”
He also advises the funds that engage in active governance – effectively telling public companies how to run their businesses by throwing their weight around as shareholders. Back in 2004, for example, Polygon put pressure on British Energy, in which it had a 5.6% shareholding, by teaming up with other shareholders and calling an EGM to derail management attempts at a restructuring deal.
Charnley believes many of the top UK law firms have missed the boat to get corporate work for these new clients. “You need to be able to be responsive and know what you are talking about. And a lot of the big firms eschewed it to start off with because they didn’t think it was worth doing, and now they are all getting involved.”
McDermott brings the US perspective to the mix, with so many of the deals requiring US securities expertise, but also does regulatory, fund formation and tax work for the alternative investment managers on both sides of the pond.
Shearman & Sterling’s work in London includes advising CQS backing Varleigh on its acquisition of Medical Information Professional Systems, and working with Och-Ziff as an investor in Lornamead’s acquisition of the Yardley brands from Procter & Gamble.
It’s a marketing opportunity for law firms that only looks like getting hotter.
With hedge funds including Eton Park Capital Management piling into P&O shares when its takeover battle kicked off, Sowood Capital Management locking horns with private equity firm Apax in the war for control of Tommy Hilfiger, and Fortress successfully buying German property company Gagfah for $3.5bn, the law firms that ingratiate themselves with the managers will surely be onto a winner.
