Linklaters’ Mr Tough Guy on why the next two months are key for the City
THE legal profession might be going through one of its biggest slumps in a decade – but you would not know that looking at Linklaters’ senior partner David Cheyne.
A small, dapper man, he is relaxed and all smiles as he sits in a tastefully furnished ground floor meeting room at the firm’s Silk Street headquarters in London, which is at the hub of its global network.
But perhaps that is because Cheyne, 60, knows more than the rest of us about the state of the economy. Along with Nigel Boardman at rival Slaughter and May, he is regularly labelled both the toughest dealmaker and the best-connected man in the City. And as you would expect, he is also rather charming.
The Linklaters lifer, who joined the firm in 1972, made his name working on a range of high profile deals, which over the last 10 years include advising Dubai’s DP World on its £14.5bn acquisition of P&O, Allied Domecq on its $17.8bn (£10.9bn) sale to rival drinks maker Pernod Ricard, and Vodafone’s $56bn purchase of US rival AirTouch and $180bn acquisition of Germany’s Mannesmann.
Cheyne was elected senior partner in 2006 and, unlike previous incumbents, chose to retain clients and work on deals.
He says: “I like the cut and thrust. It is quite entertaining. In a big M&A deal you can take responsibility not just for haggling on negotiations to do with the deal, but also for the legal work around raising the capital. You become quite involved then, and the process becomes really absorbing.”
Cheyne adds: “I don’t want to get too far away from clients. That’s where we make our money.”
And in truth Linklaters 2008 annual figures, published in July, have held up reasonably well. Its turnover increased slightly to £1.3bn, but the profits it distributed to partners fell 9.6 per cent to £1.3m.
To cut costs during the year the law firm axed 400 support staff and lawyers, with around half coming from its London office. Critics say these workers were sacrificed to keep partner profits in line with rivals.
Cheyne counters: “That was not primarily the reason. We have to keep recruiting graduates, and this takes place two years in advance. The firm has to keep growing, but we can’t have people running around with no work to do. Morale might have been bad in the short term when those cuts happened, but it would have been worse in the longer term for the business if people had been here without enough work for them to do.”
Linklaters, a huge operation which now employs 5,000 staff worldwide, is organised into three departments.
First comes corporate, which handles mergers and acquisitions and rights issues, and usually accounts for 40 per cent of fees. Then there is finance, which takes care of banking and capital markets business, and also accounts for 40 per cent of revenues. Last but not least comes the commercial department, which specialises in tax and litigation matters, and accounts for the firm’s remaining 20 per cent of sales.
Cheyne says that banking managed well last year, but that the biggest type of work the firm saw was restructuring, which is of course not entirely surprising. The firm advised on the collapse of Woolworths and Waterford Wedgwood.
But Linklaters also used its widespread banking contacts to work on the failure of the Royal Bank of Scotland, while its work on the Lehman insolvency netted the firm £30m in the first six months of the year alone. The firm handled some 60 restructurings at banks and institutions last year.
But Cheyne stresses that the recession has made it difficult to make accurate medium-term forecasts about workloads.
He says: “Lawyers don’t have long pipelines. Deals run for a relatively short length of time in the main. But you often have a sense of what is out there on the horizon. He adds: “But in the current market, you have little sense of this. So far, enough work has been coming in, and that is good news. But at the moment our understanding of what work is about to come in is unclear, and that makes it hard to plan.”
That said, Cheyne says he is “fairly optimistic” about the year ahead. But he does add that the next few months will play a large part in shaping the year ahead.
He explains: “The next two months will determine how the next six months will go. If clients decide to go ahead with the deals they have discussed with us in October and November, which is often the time people start these things, then we will have a lot of work to do. If not, we will have to wait until
February to see if the market will begin to pick up.”
Global mergers and acquisition (M&A) activity is down around 40 per cent on a year ago on some measures. And although the stock market is rising
again and US food giant Kraft has put a £10.2bn takeover proposal to Britain’s Cadbury, Cheyne says it is “too early to say” if the swashbuckling times of M&A are back.
He says: “The mood of clients is more optimistic, but it is still quite tentative.”
Before Cheyne took over as senior partner at Linklaters, he spent five years as the head of the firm’s corporate department. He was part of a senior group who insisted on high standards and would regularly axe underperforming partners.
Critics said his department and the firm as a whole became a tight-knit club where a few key lawyers worked on all the biggest deals. But his supporters say that when Cheyne led the corporate department, it regularly topped the legal profession’s annual M&A lists.
Cheyne says: “Lawyers are very difficult people to force to do anything. The partners wanted to go this way. The partnership is full of very capable top quality lawyers and they want it to stay that way. And speaking personally, I like being at the top. It’s a good place to be.”
With the collapse of Lehman Brothers, banks and financial institutions around the world being taken into government control, including the Royal bank of Scotland and Northern Rock, we are clearly in momentous times.
But Cheyne says we should not underestimate the capacity of people to forget the bad times. He says: “Regulators will want to change how money is raised. And they will have an effect at the margin. But I think in five years time there will no radical change to the way the markets work.”
He goes on: “People will want to borrow money. Banks will want to lend it. And others will want to package up these deals. People want to do business in this way, and they will find ways of doing it within the rules.”
Cheyne is determined Linklaters remains close to its clients, and is therefore the first law firm they turn to ensure their deals remain inside the rules when the good times return. Whether that strategy actually pays off we shall soon find out – perhaps even in a couple of months’ time.
CV DAVID CHEYNE
Age: 60
Work: Joined Linklaters in 1972 as an assistant solicitor; became a partner in 1980. Worked in a variety of senior roles,
including the finance department in Hong Kong from 1981-1986, and was head of the firm’s corporate department based in London from 2000-2005.
Was elected senior partner in 2006
Education: Stowe;
Trinity College, Cambridge
Family: Married, three children
Lives: Notting Hill, “though I always flee when the carnival is on.” And a house in France.