It’s been a long time coming: the European arm of law firm King & Wood Mallesons appointed administrators on January 17, putting the lid on a messy few months.
Disgruntled teams of lawyers had been jumping ship for a while, but departures gathered pace in the final quarter of 2016 when it emerged a recapitalization plan had failed. In total, 40 of the 131 Europe-based partners, including prominent private equity lawyers Michael Halford, Sabine Schomaker and Clemens Niedner, quit in the last three months of 2016. The exits were continuing as this magazine went to press (see our explainer, p. 14)
SJ Berwin merged with Chinese-Australian King & Wood Mallesons in 2013 to create what was supposed to be a unrivaled international law firm. Instead the European arm – the part which had been SJ Berwin – sank under £35 million ($43 million; €41 million) of debt. Where did it go wrong?
Several sources told pfm there were stark differences in the expectations of the private equity-focused SJ Berwin team and their new colleagues.
Following the merger, SJ Berwin partners expected investment to be made in its core practices – funds and private equity – so they could be expanded across the firm’s global platform. But the Australia and Asian arm was keen for the Europe team to refocus on other areas such as dispute resolution, according to sources who had worked in the private equity practice. This created resentment.
A mid-2015 strategic review, aimed at removing underperformers and cutting costs, resulted in the departure of more than 15 equity partners in Europe. This was followed by a restructuring in March 2016, in which around 15 percent of partners were told to leave, including a number of high-billers. This both widened the rift between the regional arms of the firm, and removed key rainmakers from the business.
The departure of a six-strong Paris-based private equity team in April 2016 compounded financial difficulties. The group was one of the firm’s most profitable practices, with annual billings of around £8 million. Among them was Maxence Bloch, the European branch’s representative on the firm’s global board. This spooked several other partners, who left assuming there was something afoot.
The departure of a large number of partners in quick succession also meant the firm’s outgoings skyrocketed, as the partnership agreement requires the firm to repay capital to leavers within 30 days.
Barclays Bank demanded increased security against its lending to the firm in July, placed several restrictions on the firm and pressured it to boost its capital.
Partners voted unanimously for a £14 million recapitalization plan, but this fell through when head of investment funds Michael Halford and several other key figures tendered their resignations in October. A subsequent rescue deal put forward by the Asian end also collapsed.
After administrators were appointed, the firm confirmed the rescue of select European and Middle Eastern offices: London, Frankfurt, Dubai and Riyadh. Affiliated offices in Madrid, Milan and Brussels were also saved. They will no longer offer full service capabilities, but will instead focus on the core practice areas of corporate M&A, finance, competition and dispute resolution. ?