The private equity (PE) market is not immune to the impact of the Covid pandemic. But in defiance of the gloom of 2020 and these early days of 2021, there continues to be a strong demand to close deals. This gives PE lawyers considerable power and makes for intense recruitment battles, with law firms competing hard to scoop the best PE specialists from a small pool of rising talent.
In this piece, we look at some of the latest market trends in private equity and prospects for legal recruitment in this important space.
The PE market 2020
Together with much of business back in March/April of 2020, PE went very quiet. Generally, we saw a trend of PE partners turning their attention to refinancing portfolio companies and general “firefighting”, with limited transactional activity.
However, from September onwards we noticed a big shift. Suddenly, the PE market was busy once more and that continued right through to the end of the year: we were talking to partners who were working flat out to close several deals over the Christmas period and this trend has certainly continued in the early part of 2021. Between October to end-December 2020, global deals hit $155 billion according to Preqin data, making it the busiest quarter since 2007.
There are good reasons for this resurgence. In 2019, PE firms raised hundreds of billions of dollars – capital that now needs to be spent or returned to shareholders (there is a reported $1.5 trillion available for investments). This “dry powder”, combined with increased market confidence gained from the completion of the US election, and the approval of several highly effective vaccines in the fight against Covid, has resulted in a significant shift of mood to one of increasing confidence for 2021.
Of course, some sectors have done better than others. In particular, hospitality and real estate have generally both had difficult years, but healthcare, life sciences, infrastructure and technology are major stomping grounds for PE funds. Many law firms are now asking us to approach partners who have specific experience in these sectors, and we expect to see more of this targeted approach through 2021.
Other developments include a significant rise in SPAC (Special Purpose Acquisition Companies) listings, with European SPAC listings set to hit record levels this year, as well an increased focus on distressed investments, which we expect to become more evident through 2021.
Implications for the legal sector
In light of this, PE lawyers are very busy. Firms including Kirkland & Ellis, Latham & Watkins and Weil Gotshal & Manges closed multi-billion-dollar transactions through 2020 – with expectations that 2021 will bring more of the same, especially as markets begin to recover as vaccinations proliferate.
This fuels the demand for talent in this area. PE specialists comprise a significant number of the corporate lateral moves in the UK legal sector, and we have continued to make such placements, with moves continuing apace even in lockdown. Quite simply, PE is everywhere.
According to PE data of the London market covering 2017 to 2020*, 2018 was the busiest year for PE recruitment with 25 partner hires and 2017 the lowest with only 16 hires. By comparison, 2020 held up remarkably well with 22 hires over the year. In addition, partner promotions remained healthy with 16 in 2017, 19 in both 2018 and 2019, and a steady 16 in 2020.
It is little wonder that law firms are attracted to this lucrative area. PE generates consistent and repeated work, often involving higher fees than other practice areas. It can also be a boon for other aspects of legal business – as closing deals often requires the input of other practice groups, such as tax, finance and employment.
Demand for talent in private equity far outstrips supply. In London, around 375 partners across c.80 firms work on transactions involving private equity clients. However, after analysis, only half of those partners are predominately focused on PE, giving them highly valued specialist status.
US firms dominate this market, scooping up much of the UK talent in recent years due to highly attractive compensation packages and excellent growth platforms. Almost half of PE specialist partners are at US firms, 22% at magic/silver circle firms, 28% at international/global firms, and just 1% at traditional UK firms*.
Top firms have enormous presence in the market and their rainmaking partners don’t leave without huge incentives. Other firms wanting a share of the PE prize must think creatively if they want to compete.
When it comes to hiring PE partners for UK and International firms, we often see recruitment strategies that are based on aspects other than compensation. These could include more emphasis on a collegiate and enjoyable working environment, better prospects, particularly for junior partners looking to make equity, and a more suitable pricing model to attract certain clients and deals (particularly for more price sensitive sectors). We are also seeing a big push from international firms to focus on being able to offer a truly integrated international and full-service platform, something that some elite US firms cannot offer.
Whilst money is always an important factor, the clients often take centre stage in the decision-making process, and a detailed assessment of how the client will react and the ability to serve clients more effectively is critical in the consideration of any partner or team move. In fact, we have had several occasions where the client has directly suggested to the partner that they should consider a move, particularly to a firm that may work with the same client in other jurisdictions.
PE is a practice area with a large number of young partners. It’s a fast paced and fluid sector. Of the PE partners currently practising in the London market, 60% qualified post-millennium. Notwithstanding the Kirkland team (in which partners are typically promoted at a more junior level to other firms) there is a considerable pool of rising talent.
We are also seeing a steady rise in the number of female PE partners with 21% of female partners having qualified post millennium compared to only 8% pre-millennium. 24% of promotions between 2017 and 2020 were also women*. We certainly expect to see an emphasis on continuing these efforts and are increasingly being asked by clients to take a more targeted approach in attracting diverse candidates.
At the same time, 2020 threw up a surprise in the PE world. In a market in which people are perceived to be working at their desks late into the night, Covid showed that PE deals can proceed successfully in a virtual landscape and, indeed, from home. One PE partner quoted by Law.com described a year in which he not only worked hard but also got to see his child taking his first steps. This is big news for a market that offers huge rewards but demands a lot in return from its lawyers. Things change quickly here – ambition, big deals and financial reward will continue to drive the field, but in the hands of a rising, highly aspirational workforce, the dynamics can evolve incredibly quickly.
The private equity market has huge power to transform markets: in the search for positive news just now, it’s one to watch in 2021.
- Source – Legal Monitor, ‘Private Equity Partners London’, December 2020, recording data from January 2017 to December 2020
By Edward Stratford, Associate Director, Fox Rodney