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Mid-market wrangles: Olswang vs SJ Berwin
Catch up Olswang and SJ Berwin, founded within a year of each other, went through some painful times recently. April’s figures now show a stunning surge forward, but neither management is strong on ‘strategic vision’. Does it matter? VANESSA PAWSEY
SJ BERWIN MAY NOT LIKE BEING compared with Olswang, but the recent battle for private equity partners Jonathan Pittal and Perry Yam is testament to the intense ongoing competition between the two. SJ Berwin is a £101m business – Olswang’s European turnover amounts to £60m. Both are on the rebound and hungry to grow more. The latest event to intertwine the two firms occurred last month, when two SJ Berwin partners found themselves torn over whether to join Olswang – the story was played out in the full glare of the press. It goes like this: Pittal and Yam are unhappy in SJ Berwin’s private equity department and believe the organisation of the department hinders their progress in the venture capital arena. They put themselves on the market, Olswang makes
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them an attractive offer and they resign. But SJ Berwin – particularly head of private equity Jonathan Blake – is determined to keep Pittal and Yam. Blake is expected to stand for senior partner in 2005; he needs to be seen to be holding together the private equity group. (High-profile partner John Daghlian left the firm in January for O’Melveny & Myers – the loss of two more partners would be particularly untimely.) Over at Gray’s Inn Road, the SJ Berwin partners meet: the group agrees to divide itself into four subsections, allowing for specific focus areas such as fund formation, venture capital or leveraged buyouts. Pittal and Yam are also offered full equity, although senior partner David Harrel insists ‘they would have received it anyway’. At this point, Pittal and Yam review their options and appear to be veering towards staying at SJ Berwin. Olswang withdraws its offer. SJ Berwin is condemned for tolerating bad behaviour from its partners and succumbing to threats of departure. As one exasperated ex-partner sums up: ‘Jonathan and Perry threw their
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Olswang vs SJ Berwin
A TALE OF TWO CITY SLICKERS Origins: SJ Berwin started as a four partner tax-driven corporate finance boutique in 1982; Olswang began as a niche media firm in 1981. Both grew quickly, and both are characterised by an entrepreneurial spirit found in start-up firms with the drive to pursue phenomenal expansion. Today there are 127 partners at SJ Berwin – a £101m business; Olswang has grown from one partner to 72 at the last count, and brought in £60m in fees.
FAST MOVERS: SJ BERWIN Such rapid growth is not without its problems. ‘SJ Berwin is perceived as something of a sweatshop. If you don’t have armour-plated shins, then you get crushed,’ a partner at a rival firm summarises. Competition is entrenched: there are no shortages of stories documenting the historic rivalry between head of private equity Jonathan Blake, head of corporate finance Robert Burrow and exuberant ex-corporate partner Jonathan Metliss (who was a founder of the firm, and is now a consultant). But what these stories often skate over are the positive side-effects of such an environment. Senior partner David Harrel points out that there was a great deal of creative strife in the battles. ‘I don’t think there’s any doubt that there have been tensions, but there were a lot of people that were happy with that and understood the nature of the firm.’
He argues that the perceived aggression is in part responsible for SJ Berwin’s successes. Last year, the firm was 18th in terms of revenue in the LB100 and it is widely recognised for top-tier practices in private equity fund formation, EU competition, commercial property and certain areas of media such as film finance. These achievements are down to ambitious individuals. One ex-partner observes: ‘SJ Berwin grew on the back of cherry-picking partners and that has been very successful. It’s doing well, but it needs to start working as a firm rather than as a bunch of individuals.’ The firm could be about to get a helping hand, given that a review of the strategy committee is already underway. It currently comprises Ralph Cohen, Jonathan Blake, Steven Davis, Geoff Wolf, Stephen Kon and Stephen Willson – all hand-picked by Harrel, who in turn takes soundings from the partnership. As part of the consultation process, the firm will look at whether the board should be elected.
ALWAYS HUNGRY: OLSWANG Olswang took one of its biggest gambles when it recruited 30 lawyers from the now defunct firm DJ Freeman in March 2003. The move was controversial because it diversified the firm’s technology focus by expanding the property and corporate groups and attempted to integrate a bunch of lawyers from an older more traditional background into a young partnership (with a reputation for an anarchic culture). The risk seems to have paid off. According to Susan Aslan, an Olswang media litigation partner who was originally from DJ Freeman, the process has been a success. She says: ‘I think there’s been an element of
finding middle ground. The DJ partners are older than Olswang is used to and that’s brought an interesting strand into the mix.’ To consolidate her view of integration, ex-DJ Freeman partner Tony Leifer has just taken over as head of corporate. Five years ago, Olswang’s manifesto was to become the firm of choice for the media sector in the UK. Now there is a bigger game plan and it has had to rethink that focus. One ex-partner says that diversification and growth go hand-in-hand. ‘Take the word media,’ he notes. ‘Its meaning has changed. It used to be entertainment, but then it expanded to include technology and telecommunications. Now that the telecoms market has gone flat, the regulatory lawyers in that field have expanded into energy. In short, at Olswang, media work has spiralled and the message has been diluted.’
> toys out of the pram and they get rewarded.’ It’s much ado over something, but not great press for either firm. There is also the history: four partners have moved from SJ Berwin to Olswang in recent years; just one partner has gone the other way. The similarities don’t put the firms on an equal footing (SJ Berwin is a larger and more profitable firm) but it does mean
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there’s a fair amount of crossover – see ‘A tale of two city slickers’, above.
Riding your luck For SJ Berwin, Pittal and Yam’s decision to stay was a facesaver. Blake is quick to defend the firm’s position and denies that it has conceded to any
demands. He explains that the changes to the private equity department would have taken place anyway. ‘When we heard they were leaving, we called a meeting and discussed what was troubling them,’ he told Legal Business. ‘We came up with a consensus about the way things have been working over the last year. It struck a chord with others in the department and we felt the changes were things we wanted to do.
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Olswang vs SJ Berwin
TOP FIVE CLIENTS SJ Berwin: Apax Partners, British Land, Diageo, Hilton Group, Royal Bank of Scotland THE MOVERS AND SHAKERS Partners that have moved from SJ Berwin to Olswang Graeme Levy, Kay Butler, Jacqueline Hurt, David Stewart SHOULD I STAY OR SHOULD I GO? Reasons for Pittal and Yam to stay at SJ Berwin More profitable More established client base Bigger department Higher profile in private equity They had been promoted to equity The firm has agreed to restructure the private equity department to focus on venture capital
TOP FIVE CLIENTS Olswang: Minerva, Delancey, Benchmark Capital, Bloomberg, New Star Asset Management THE MOVERS AND SHAKERS Partners that are moving from Olswang to SJ Berwin Pat Dugdale (via Allen & Overy where she was head of tax know-how and training) SHOULD I STAY OR SHOULD I GO? Reasons for Pittal and Yam to go to Olswang The firm is more focused on venture capital than SJ Berwin More collaborative environment Young and dynamic partnership Distinct brand Rising profitability
WHERE THE MONEY GOES – SJ BERWIN Turnover 2001 £88.4m 2002 £96.1m 2003 £91.3m 2004 £101m (excluding Germany) Profit margin 2001 33% 2002 31% 2003 27% 2004 37% PEP 2001 £555,000 2002 £527,000 2003 £402,000 2004 £523,000
WHERE THE MONEY GOES – OLSWANG Turnover 2001 £46.1m 2002 £46.5m 2003 £49m 2004 £60m Profit margin 2001 38% 2002 28% 2003 25% 2004 29% PEP 2001 £500,000 2002 £400,000 2003 £276,000 2004 £350,000
Following Harrel
Source: Legal Business
Pittal and Yam may have been a catalyst, but the department would have been restructured anyway.’ It’s been an encouraging year for SJ Berwin. Its average profits are up by a substantial 30%. It puts the firm’s PEP back at £414,000. It also puts it back where it was in April 2002 – though some way off peak profits, which reached £555,000 in April 2001.
This year the market has resurfaced. ‘It’s the entrepreneurial and enterprising end that gets hit first in a recession,’ Blake admits, ‘but it’s also the first part of the market to recover.’ There is a general air of optimism at the firm, perhaps driven by the knowledge that the firm is moving from Gray’s Inn Road to brand new headquarters at 10 Queen Street Place, near Monument. The move at the end of 2005 will coincide with management elections in August next year, which are likely to see Harrel step down. By then he will have been senior partner for 14 years and, although he says he hasn’t decided whether he’ll stand again, the matter of succession is foremost in his thoughts. ‘We are right in the middle of a consultation process,’ Harrel says. ‘In my time as senior partner, I’ve put management on the agenda and while we don’t know what we’re going to do about it yet, by autumn we hope to have a real understanding of how to deal with it.’ In May 2002, Harrel appointed EU and competition partner Ralph Cohen to a newly created managing partner role. ‘That was a deliberate part of management,’ he explains. ‘I thought that no one would want to do the job I was doing, which combined the senior and managing partner roles, but now everyone sees that the senior partner role could be something of a figurehead.’ It is widely predicted that Blake will take over the senior partner role, although some think that Cohen would do a better job. ‘Law firms often appoint people on the wrong attributes and look at billing figures and client clout rather than at people management skills,’ says one source.
What went wrong? Senior partner David Harrel says: ‘I think the market went wrong. Venture capital went completely flat and there was less fund formation. I also think we were unlucky. We worked on deals worth £14bn for the year ending April 2003, but only £1bn ever completed.’
Harrel is widely respected and often credited with holding SJ Berwin together, after former senior partner Christopher Haan left the firm for Coudert Brothers in 1992 amid rumours of a disagreement with the strategy committee. Harrel is unusually open and honest – he is undeniably charming and will be a difficult act to follow. His management style, by all accounts, is consensus-driven. He admits that he’s not afraid of individualism, and encourages people to speak their mind. ‘It’s a very flat structure here and there aren’t many restrictions; we talk about everything and we don’t try to hide anything,’ he explains.
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meet targets. Goldstein says that only one out of the 11 is a loss. ‘The mistake that we made was to grow too fast in the early 1990s. We were part of a momentum that seemed unstoppable… and then it stopped. If I could change one thing I have done, I would like to have curbed acceleration and Harrel: management issues high on the agenda to have been far more selective.’ Goldstein made a name for Olswang’s swagger himself when he became the Olswang has also made a swift recovery. Its youngest partner to run a firm, turnover is up 22% at £60m, while profits with his election to the position are up between 25% and 30%, which puts of chief executive six years ago them at around £350,000. The results are at the age of 32. Management impressive given that it is the first full year elections are currently taking to incorporate the ex-DJ Freeman group. place, but it is almost certain When DJ Freeman disbanded and reformed that Goldstein and senior as Kendall Freeman, it expelled the property partner Mark Devereux will be and technology lawyers. Kendall Freeman re-elected. Goldstein and managing partner Laurence Harris admits Devereux are relaxed and that profitability was one of the reasons informal and, inside the firm’s behind the decision. However, he also says swanky new offices on High that those DJ Freeman parts are likely to Holborn, it would be easier to have done better in a firm that is investing believe that they are running a in property and technology. young corporate start-up than a Olswang’s figures hit a worrying trough maturing City law firm. ‘Jonny in April 2002, when, according to the firm’s has vision to get his head above high-profile chief executive, ex-SJ Berwin the parapet. He also has very lawyer Jonathan Goldstein, a clear strategy good business acumen and is was put in place. The plan was to continue to build corporate and media and to leverage off that to build into other areas such as property, banking, litigation and employment. There’s been quite a change. In the new firm, income is broken down so that 30% comes from corporate, 18% from property, 27% from litigation and just 25% from media communications and technology. There has also been an ongoing process of managing out partners. In the last two years, 11 partners have left the David Harrel, SJ Berwin firm – of those, seven were The downside is frustration. ‘He doesn’t make enough decisions,’ says one ex-partner. Unlike other firms that expanded in the technology boom (Olswang and Osborne Clarke for example) SJ Berwin has avoided associate redundancy programmes and managing out partners. To some, this looks like shying away from tough decisions. But one ex-partner says that, because the firm has a meritocratic remuneration system and a reputation for hard graft, it is difficult for any lawyers to coast.
‘I think the market went wrong. Venture capital went completely flat and there was less fund formation. I also think we were unlucky.’
either asked to leave or didn’t
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good at spotting business opportunities,’ Devereux raves of his colleague. ‘He is also young and has a great deal of energy that is visible. It energises the firm.’ Goldstein is equally complimentary. ‘Mark has been in the firm since day one and is a bellwether of what went right and what went wrong. He’s also very well respected.’ Olswang’s management board comprises Goldstein, Devereux, the COO Kevin Munslow, group heads and two elected non-executive members. However, like SJ Berwin, it doesn’t have a strong central management. ‘Olswang wouldn’t work as a dictatorship,’ Kim Nicholson explains. Corporate lawyer Nicholson was the firm’s top biller last year – but she wanted a lifestyle change and has recently become a consultant. ‘There is strong financial management, but partners are generally enabled [in their actions], providing that what they want to do makes business sense,’ she adds.
Finance focus Both Olswang and SJ Berwin have achieved a greater finance focus over the last few years. For Olswang, the banking practice is still in relative infancy – it was set up by corporate finance partner Moni Mannings, who was recruited in February 2000 from Dewey Ballantine. The team sits within the corporate group as a support, but has also had a number of successes with banking clients, securing Anglo Irish Bank, HSBC and RBS. ‘It’s been a mutual help for our borrower clients in corporate and property as well,’ Mannings says. ‘And we have been asked to pitch for hundreds of millions of pounds of property transactions.’ In the last financial year, the group brought in £2.5m. It also meant that the firm won instructions for which it would previously not have been considered, such as advising Kleinwort Capital on the £23m buyout of Hat Trick Productions and advising management in the £50.8m MBI of Chrysalis. At SJ Berwin, there has been a massive increase in banking capability. The firm had been trying to develop the practice for some time, but the turning point was the recruitment of Paul Diss and Geoff Woolf from Stephenson Harwood in 1999. Since then, it has been able to attract credible finance lawyers more easily; last year, Jeremy Cross joined from Osborne Clarke, bringing acquisition finance capability. SJ Berwin is on panels at a number of major banks,
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including HBOS, RBS, Barclays, Nomura, Dresdner and Standard Chartered Bank. This year, turnover was up by 28% to £6.3m. A major benefit is for SJ Berwin’s highprofile private equity department, which has previously struggled on the debt side. One of the biggest criticisms of the firm is that it has failed to leverage off its private equity fund formation credibility to rival the top-tier firms in the buyout arena. Blake says: ‘Finance is often one of the most significant parts of a transaction and having a strong acknowledged team which also represents the banks independently makes us more credible.’ The firm has been more active on the buyout front this year, advising Bridgepoint Capital and Permira on the recommended offer for Holmes Place, and advising Hermes Private Equity on the MBO of Walbrook Group. But it is still playing in the mid-tier.
Mergers options The international strategy differs enormously at the two firms. Apart from a token office in Brussels, Olswang has shied away from Europe. Management takes the view that European offices are a drain on resources and while Goldstein says that the firm needs to be international in the next ten years, his focus is on the US. He is not short of approaches, but is reluctant to go down the merger route. ‘My partners don’t want to be part of a US firm, but if we could create a situation where we have a deeper relationship with a US firm that gives us trading and contractual links, but falls short of a merger, that would be interesting,’ he says. ‘I don’t believe in referral as a longterm strategic position, but I also think we need to maintain our independence.’ Olswang is currently talking to an undisclosed number of firms about setting up a new model that would create something inbetween a merger and an alliance. Two years ago, Legal Business singled out Olswang and SJ Berwin as the two firms most likely to be targeted by US firms for merger. If tumbling profitability quickly lessened their appeal, the present focus on figures that resulted in this year’s turnaround must put them both back in the running. But Devereux explains that Olswang’s culture wouldn’t fit easily into that of a US firm. While the firm has an expectation of chargeable hours, it is very flexible and doesn’t penalise people if they don’t achieve target, as long as they are doing something
valuable. ‘We have one partner continuing expansion in turnover, are who doesn’t record hours, but we enough in themselves. know him very well and he That said, the lack of strong central manalways brings in the fees,’ agement makes it difficult to compete with Devereux explains. rivals: Clifford Chance did not become the SJ Berwin has a different largest law firm in the world by allowing the strategy. The firm has set up partners to make their own decisions. SJ offices in France, Spain and Berwin is undergoing numerous ‘consultaBrussels and, at the end of April, tion’ processes – over who should be senior it finally secured full integration partner, over the strategy for a strategy with its German alliance firm, committee, and over how to capitalise on US Knopf Tulloch & Steininger, links – but so far no clear path has emerged. which this year generated £11m Its enormous recovery this year seems in fees. Historically, the offices to be down to a certain amount of luck, have been set up to mirror the although Cohen asserts that it is also thanks firm’s strength in the UK and to partners’ efforts. ‘We have been very have focused on private equity. prudent in recruitment policy and have held While this has been very suca tight rein on financial disciplines. Everyone cessful, one of the challenges has bought into this and made the effort.’ now is to build Buy-in is the key priority. As capability in other the dust settles on the two SJ areas. In Germany, Berwin partners who were so the firm has just nearly bought out, the managing announced the partners of both firms must appointment of define more clearly just where Thomas Schrell, they want their firms to be going. who joins from SJ Berwin has risen through Lovells, adding the ranks of the City midsizers, acquisition finance and is now simply too big to be capability. Harrel considered one. But it is less than wants SJ Berwin to half the size of an Ashurst or a become a leading Norton Rose, and the larger European transacnational firms are all getting tional firm in the sharper at winning market share next five years. On – particularly the £250m business the US side, he that is DLA. Goldstein: Olswang not keen on a US merger doesn’t rule out a Olswang, meanwhile, has merger, but says the current emerged from its media niche and entered focus is on examining existing the fog of mainstream midsizers – from relationships. ‘We are looking Charles Russell and Travers Smith Braithwaite to see whether we should to Taylor Wessing and Nabarro & Nathanson. decrease the number of US relaGoldstein needs a stronger vision to navigate tionships. But we haven’t his firm’s path through such a crowded decided yet,’ he admits. market, or risk rendering one of the most For now, both firms can get well-known and audacious brands dangerousaway with a dearth of clear nextly anonymous. But Goldstein shares Harrel’s stage growth strategies… as long propensity for unadulterated self-confidence. as the profits keep rising. ‘We’re proud of our autonomy, and we’re not prepared to change it,’ Goldstein affirms. Grand strategic platforms – be they in Crosstown traffic Europe, the US, or in sector focuses – are subThese two firms are exceptionally servient to one key aim, that partners best results-driven. Both Olswang’s understand: ‘The bedrock of the firm can get Goldstein and Harrel of SJ Berwin us back to profitability of £500,000 a partner.’ bristle at questions that address Be it part or not of a stated strategy, it criticisms of their firms: they see is this that will most attract the US firms the year as a blinding success. once more. LB Massive hikes in profits, and vanessa.pawsey@legalease.co.uk
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