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How much did it cost to capture the private equity star, and why couldn’t the Magic Circle firm compete?

By Hannah Roberts and Krishnan Nair | January 10, 2019 at 10:00 AM | Originally published on International

A few years ago, the idea of all of London’s top-ranked private equity partners being at U.S. firms would have been unimaginable to many London-based lawyers.

But Kirkland & Ellis’ hire of Freshfields Bruckhaus Deringer Adrian Maguire—just a year after his former Magic Circle colleague David Higgins made the same move—marks a watershed moment.

Maguire was one of the last of the top-ranking private equity partners practicing at a U.K. firm, according to Chambers and Partners, and now he’s Kirkland’s man.

Many in London have expressed shock at Maguire’s move, based on his personality and his reputation as a Freshfields man through and through.

Partners describe Maguire as a “team player” and a “really nice guy,” but also as someone unlikely to be attracted by the hard-headed, competitive culture of U.S. firms, despite receiving many such offers.

The fact that even Maguire has moved is likely to make other U.K. firm stalwarts think twice about where their loyalties lie.

“This move will act as a catalyst to make people in Magic Circle or Silver Circle firms analyze whether there are better long-term prospects for them in a U.S. firm,” said one private equity partner at a U.S. firm. “This is a starting point for other people to work out their own position.”

Although several partners in London said they believed Maguire joined Kirkland on a $10 million pay package, the actual figure is lower. People close to the situation described the raise as several million dollars more than what he was earning at Freshfields, which insiders say was slightly more than £2 million ($2.5 million).

Neither is Maguire on a guarantee, which would have secured his earnings for a few years, according to one person familiar with the matter.

But Maguire’s colleagues concede that the raise was still something that would almost certainly have been out of reach for Freshfields. Even with its revamped system, Freshfields’ commitment to a lockstep model means it is unable to pay top earners as much as U.S. firms that operate an “eat what you kill” model.

The appeal for Kirkland is also clear. Maguire was co-head of Freshfields’ global financial investors group and led Freshfields’ highly regarded buyout offering alongside Higgins for many years.

“You can no longer say Kirkland or Latham are not credible,” one top private equity partner said.

However, one former Freshfields partner suggests Kirkland’s strategy is more nuanced than a simple case of acquiring top talent and a roster of portable clients, and compares the firm’s approach to Google and Facebook snapping up startups before they become competitors.

“U.S. firms tend to be highly strategic,” the former partner said. “They’re capable of hiring people from a competitor just to destabilize them. If you’re Kirkland and you have a global PE business of, say $300 million, with five or six key clients, it makes sense to neutralize the competition to protect the franchise. Spending 10 bucks to save $300—why not?”

Maguire’s move also leaves Freshfields’ private equity practice in a quandary. “It leaves Freshfields with a relatively young team,” one London-based partner said. “Any team that loses its top two rainmakers would see an impact on the practice.”

While other rivals say age and experience may not be a problem in itself, lawyers are wondering who will pick up key client relationships in Higgins and Maguire’s wake.

Private equity house Cinven is one such client that may find its attention turned, and while private equity partner Charles Hayes has been picking up much of the CVC Capital Partners work for Freshfields during Maguire’s six-month sabbatical, Latham & Watkins won a large mandate for CVC and Blackstone last year on their £2.96 billion ($3.78 billion) acquisition of Paysafe Group.

Victoria Sigeti, James Scott and Tim Wilmot have been mentioned as key partners to take the practice forward.

The departures also raise questions about the changes Freshfields made to its lockstep last year, an overhaul that was intended to stem the flow of senior exits but has been followed by a series of high-profile departures, including Higgins and high-yield star Ward McKimm, now at Shearman & Sterling.

Former managing partner Chris Pugh took the fall for the firm’s poor financial performance in 2016-17, stepping down as co-managing partner in July 2017, and scrutiny is now likely to turn to senior partner Edward Braham. Three ex-partners suggest it is “inescapable” that Braham will face growing pressure to address what is seen by many as a failed experiment.

“The modified lockstep has failed,” said one former Freshfields partner. “Pugh was made to step down for less than this. You modify the lockstep not for those establishment players who will never leave, like, say, Julian Long, but to make it less likely for those who may want to go, like a Higgins, a McKimm or indeed a Maguire.”

The revised lockstep, ushered in for the 2018-19 financial year, enabled the firm to pay top performers around six times more than those at the bottom of the lockstep. Though designed to retain star talent, one former partner said the shake-up had failed. “The two figureheads it was most aimed at [Higgins and Maguire] have walked out the door, so now it’s open season.”

A Freshfields spokesperson defended the firm’s lockstep model, saying it “supports our strategy of delivering high quality, global advice for our clients working in effective cross-border teams. It was well debated and supported before it was implemented last year.”

So what’s next for Freshfields’ private equity team, once thought of as London’s premier practice?

“It can go two ways—either people leave over time, like what happened at Linklaters, or they’ll lock it down and build up a new practice,” said one private equity partner at a rival U.S. firm.

Another private equity partner said the move is not likely to spell the end of Freshfields’ PE practice. “But it seriously dents its offering,” the partner said.

The immediate question for Freshfields is whether more departures will follow.

“There’s no point taking just one partner—you have to move other partners as well, so that the balance tips in favor of Kirkland,” one private equity partner said. “You’d still say now that Freshfields is a premier player in the market, but a year from now I think we’ll see the gap closing.”