The “magic circle” of City of London law firms have been trying to break into the US for decades, with scant success.
But Freshfields Bruckhaus Deringer is making inroads in the world’s biggest legal market, breaking squarely into the top 10 of North American firms by value of M&A deals and challenging for a place among the Wall Street elite as a costly hiring spree shows signs of paying off.
Unlike London rivals that hoped a single star appointment in New York could land Fortune 500 clients, Freshfields has hired almost 50 top partners over the past five years from the likes of Skadden, Davis Polk and Cravath to build a wide range of practices it believed the biggest companies demanded.
“Other UK firms have tried to do what Freshfields is doing and they all failed,” said one top rival dealmaker in New York. “What’s unique about Freshfields is that they have hired top-notch talent.”
Freshfields’ latest push comes as American firms have upended the London legal market by using their US profits to poach magic circle lawyers and drive up the overall pay scale in the UK.
Revenues at Freshfields’ US corporate practice have tripled since 2019 as it landed work on big deals, including Johnson & Johnson’s $13bn takeover in April of medical device maker Shockwave Medical.
That milestone, when the $400bn healthcare group selected the English firm over its usual choice of Cravath, Swaine & Moore, won attention from even the most sceptical New York lawyers, some of whom had for a time confused Freshfields for a grocery chain.
Freshfields has known the disappointment of trying and failing in the US, where previous splashy hires failed to make the firm relevant in America.
But in 2019 it took another swing, hiring seven partners from storied local firm Cleary Gottlieb, including star lawyer Ethan Klingsberg, a coup Freshfields celebrated with a soirée at Manhattan’s swanky Whitby hotel.
Klingsberg’s move to Freshfields to turbocharge its US M&A practice shook up the tight-knit deals world.
At the US firm, Klingsberg had become the go-to adviser to Google and other Fortune 500 companies. But his energy and ambition ran up against Cleary’s pay system, which favoured tenure over productivity.
Some industry insiders speculated that Klingsberg had secured guaranteed pay of more than $10mn a year — multiples of what Cleary’s lockstep offered. But he sold Freshfields on a more specific vision: it needed not just a single heavyweight figure but a wide-ranging team of lawyers with complementary practices.
The expertise of the other six arrivals from Cleary spanned deal litigation, shareholder activism and capital markets. Freshfields itself has a highly regarded existing practice in global antitrust and regulatory matters that proved a good fit for Silicon Valley and pharmaceutical companies that operate globally.
“When I spoke to Freshfields I was very clear that I didn’t want to repeat what had happened in the past,” Klingsberg told the Financial Times.
He said previous star hires “would tell me stories like ‘I didn’t get that assignment because I didn’t have the shareholder litigation expert or that governance person.’ And so I said, ‘I’m not coming unless we fill each of these pieces, and it’s not going to be cheap. And we’re not going to cut corners.’ And the firm committed to that.”
Kirkland & Ellis and Paul Weiss are driving the pay race in New York and London, particularly in the area of private equity-related work where top partners are securing annual pay packages of more than $20mn. But a range of firms are trying to land the small handful of rainmakers who prove to be difference makers.
“What makes Ethan stand out is that he’s an extraordinary developer of talent,” said Chris Hill, chief legal officer of Australian-based gaming company Aristocrat Leisure. Hill, who has worked with Klingsberg at both Cleary and Freshfields, added that the UK firm’s global expertise was essential for multinational companies such as Aristocrat.
Damien Zoubek, another star M&A lawyer who joined Freshfields from Cravath, led the J&J deal and has represented Hollywood super agent Patrick Whitesell, chair of entertainment conglomerate Endeavor, which is being acquired by Silver Lake for $13bn.
Zoubek told the FT he had chosen to depart Cravath in 2021 after he was reassured that he could service clients in more ways than just deals.
“If you look at places that have failed in the past, the main lesson is that you can’t just do the bare minimum,” he said. “You really do need to continue to invest in the team. Not only to create depth in your core execution areas of M&A, for example, but you also have to continue to invest to create depth in all other areas such as executive compensation and benefits, antitrust and so on.”
Venerable Wall Street incumbents have since been forced to modernise, with the like of Cravath and Cleary both revising their pay and incentive schemes to compete. But sceptics wonder if hourly rates charged to clients can keep up with the pay packages, particularly amid an overall deal and IPO slump.
The remaining magic circle firms are still seeking their fortunes in America. Allen & Overy has recently merged with the New York firm Shearman & Sterling. But underscoring the volatility, Shearman’s top M&A lawyers quickly defected to Linklaters.
Mergers and IPOs inevitably lead to lawsuits, which Freshfields is now able to appear in. Its newly formed shareholder litigation group has already defended the likes of Tesla, BuzzFeed and AstraZeneca in federal and Delaware courts.
“Unlike some other firms, they have been pretty conservative and strategic in how they’ve scaled their headcount over time, which I think has helped them to maintain quality control in their practice,” said Melissa Sawyer, global head of M&A at rival firm Sullivan & Cromwell, observing that the rapid expansion still appeared thoughtful and targeted.
“My sense is that they’ve also been able to cross-sell their M&A credentials to US clients on the back of Freshfields’ strong reputation for global competition law and foreign direct investment advice,” she added.
One US newcomer said the firm wanted to find a way to stay European in its feel even as New York and Silicon Valley are driving its growth.
Zoubek said he believed the modern generation of corporate leaders were more willing to hear fresh counsel. But he acknowledged that the hiring spree has also posed challenges for the firm.
“When we all come from different places, how do we make sure this is a melting pot of good ideas not a melting pot of conflict? And we spent an incredible amount of time . . . making sure we have a cohesive and common culture given how quickly we’ve grown laterally,” he said.