Freshfields Is Gaining Traction in the US. Is This Time Different?

Freshfields Is Gaining Traction in the US. Is This Time Different?

Freshfields’ office in Washington, D.C. Photo by Diego Radzinschi

Freshfields Bruckhaus Deringer is on a roll, hiring two groups of star partners in premium corporate and tech practices in the United States, all while turning heads with its approach to the world’s most profitable legal market.

The U.K. firm has tweaked its compensation model and expanded to U.S. markets where its international clients need help, key elements of a strategy that observers say looks promising but still needs to be battle-tested, given the history of British firms’ stateside expansion efforts fizzling.

Freshfields has hired about 10 lawyers from Cleary Gottlieb Steen & Hamilton in New York since last October, and this month it launched a Silicon Valley practice by recruiting five lawyers from several elite U.S. firms. Days later, it hired a Willkie Farr & Gallagher partner as its co-head of securities and shareholder litigation. Observers say Freshfields’ recent lateral hiring run represents a rare instance of a U.K. firm investing the right amount of resources and compensation to compete in the ultra-premium tier of the U.S. M&A market.

Freshfields is aiming to build out its U.S. practices by drawing both laterals and business from entrenched American firms. And among its goals is handling more U.S. matters for clients the firm already advises in Europe and Asia. The firm handles “all the international work” for some major corporations, said Alan Mason, Freshfields’ global client partner. By combining the reputation of its new U.S. partners and their contacts with the firm’s long-standing relationships, Freshfields aims to “unlock” its potential.

“We link the two together, and now we’re doing work for them in Asia, Europe and in the U.S.,” Mason said.

Part of the firm’s strategy in the U.S. is also going after new relationships too. Indeed, U.S. partners say Freshfields has recently obtained new client relationships in demanding transactional, litigation and regulatory matters, inside and outside the United States. For instance, among the four partners from Cleary, about 40% of their billable projects since March have been on matters for clients new to the firm, said Ethan Klingsberg, who led the group from Cleary and is now head of Freshfields’ U.S. M&A practice. The other 60% have been evenly split between legacy Freshfields clients and prior client relationships holding over from Cleary.

“We do have a depth and breadth when it comes to these core areas and our geographies that is very attractive and, candidly, it takes a lot of resources on our part to produce that,” Klingsberg said, noting the firm’s U.S. growth strategy is working. “We’re getting contacted; people are noticing.”

One longtime Freshfields client in Europe has long used a particular U.S. firm on domestic matters. Klingsberg had been opposite the client in the past and had gotten to know the in-house team. After seeing him change firms, the client asked Klingsberg to handle a multibillion-dollar U.S. transaction, the first time the company didn’t use its prior firm in 12 years, he said.

Measuring Success

For the eight months ending June 30, billings for Freshfields’ New York corporate associates were up more than 20% year-over-year. Meanwhile, the firm’s revenue per lawyer in the U.S. was up 7.5% in its fiscal year ending April 30. (The firm declined to provide the dollar figure on U.S. average revenue per lawyer.)

Freshfields has jumped in global M&A and U.S. league tables from 2019 to 2020. In the first half of this year, Mergermarket ranked the firm No. 9 in U.S. deals by value, up from No. 21 in the same period last year. Globally, the firm is ranked No. 2 this year. Even in a down year for M&A, Freshfields’ new U.S. partners have advised on some notable U.S. deals, such as the proposed combination of Stagwell Media with MDC Partners, which would create one of the largest global marketing service companies.

The new Freshfields partners say they offer a different approach than other U.S. corporate teams, in that they’re available for the entire cycle of a relationship, just not the big M&A deal. “We have a model where we’re integrated into the client team, as opposed to where a client might get parked in between major events,” said Pamela Marcogliese, a partner in New York who moved with Klingsberg from Cleary.

The firm’s new Silicon Valley office, which Marcogliese is helping to launch, was only a matter of time. Freshfields already had a client base there, representing European clients on antitrust and international M&A matters, according to a person with knowledge of the firm.

Of Klingsberg’s current clients, 88% are based in the U.S., and of those domestic clients, about a third are in the Bay Area, he said. Klingsberg and Marcogliese’s recent deals include advising Google on its $2.6 billion acquisition of Looker Data Sciences and advising Pinterest in its initial public offering and dual-class recapitalization.

Looking at its peers, Freshfields’ head count in the U.S.—roughly 200 lawyers—is near Allen & Overy’s, according to the firms’ websites, but still below that of Clifford Chance, which has about 300 lawyers in the U.S. Meanwhile, Linklaters has about 130 lawyers, according to its online roster of U.S.-based lawyers.

Mason said earlier this year that he anticipates “a very, very steep growth curve” in the coming years if Freshfields follows its current trajectory. It now has about 50 partners in the U.S., including corporate, antitrust, white-collar defense and arbitration, and it has added 20 associates in the U.S. in the past several months, including 10 lateral M&A associates in New York, the firm said.

As it grows, Freshfields is seeking to shed its stodgy U.K. reputation.

“Please, please do not refer to us as a Magic Circle firm,” Mason said, calling it an outdated reference.

Lateral Compensation

Freshfields’ U.S. development hinges on attracting star talent from other elite firms. After the Cleary lateral group joined last year, the firm recruited partners for its new California branch from Davis Polk & Wardwell, Sidley Austin, Latham & Watkins and Wilson Sonsini Goodrich & Rosati.

“If you are at the top of your market,” Mason said, “you’ve got a great personal brand, what do you want to do with your career? What do you do next? What we’re seeing when we speak to partners is this is a pretty compelling opportunity.”

Klingsberg noted that “not a single person has been hired for their book of business,” adding that the firm’s approach was to hire key team members with skill sets needed by clients.

“When you put the pieces together, the sum is greater than the parts,” he said.

The firm’s international platform isn’t the only incentive for laterals. The firm modified its global lockstep system in 2017, Mason said, so it wouldn’t stand in the way of the firm’s goals. Freshfields wouldn’t be able to achieve a certain level of growth “if we’re not able to pay market comp for the talent that we’re looking for,” Mason said.

But, Mason said, “lockstep is still at the heart of who we are,” contributing to a collaborative culture where lawyers don’t have to worry about origination. The firm maintains a single global profit pool that it shares among partners. Asked whether any region has more financial flexibility than others, Mason said, “we don’t have special rules for the U.S. compared with other countries.”

Klingsberg’s move from Cleary to Freshfields drew attention not only for his reputation but also a recruiter’s comments that he would be guaranteed $10 million a year for five years. Mason said that compensation package is not accurate, noting the firm doesn’t have guaranteed compensation in its lockstep. Each partner, however, has a fixed amount of equity points, so for a star lateral, this could work out to an attractive pay package, depending on their points.

Regardless, Mason said any top firm has to pay market compensation for the right talent. “What we’re marketing is our vision for the future of the business, our strategy for the business, and this possibility to shape the future of the legal market and build a unique global client offering by having a top-tier U.S. practice.”

Sarah Solum, head of the new Silicon Valley office who arrived from Davis Polk, said she was attracted to Freshfields “as a truly global firm.” She said she’s not aware of any other firm that has a European antitrust lawyer in her area. (With the launch of the office, the firm said, antitrust partner Alan Ryan will return to the U.S. from Brussels.)

“I love my prior firm, it’s a great firm. [But] it’s not in 27 offices all around the world,” Solum said. When the partners from Cleary joined Freshfields last fall, she took notice, she added.

New Silicon Valley partner Boris Feldman, who advised Google, Facebook, Netflix, Salesforce, LinkedIn, Snap and Hewlett-Packard over the years at Wilson Sonsini, said he began talking with Freshfields in late February. “I’ve been really impressed by their lack of billing-book mentality,” he said. “It’s about institutional service for the clients.”

Bumps and Challenges

Growing at a fast pace comes with challenges, even more so amid the economic and social turmoil wrought by the pandemic.

As Freshfields was seeking to expand its corporate group, Mitchell Presser, who was U.S. head of the firm’s M&A and global transactions, left for Morrison & Foerster in April to co-chair its global corporate department. (Presser did not return a call seeking comment; Klingsberg said “everybody at Freshfields is really happy” for Presser and Freshfields’ strategy in the U.S. continues unabated.)

Meanwhile, like many others, the firm delayed bonus decisions and suspended quarterly partner distribution earlier this year. And of course, Freshfields, like others, saw M&A deals freeze this year. “We had easily a dozen deals that went on hold,” Klingsberg said, adding that clients then turned to Freshfields for “lots of strategic support” in corporate governance matters.

Now, Klingsberg said, work has shifted back to strategic transactions, and the pandemic hasn’t changed the firm’s growth strategy.

Legal market observers are taking notice of the growth, saying this effort appears different than past attempts by U.K. firms. The firm’s series of group acquisitions may prove more successful than big merger deals, observers said, such as the collapsed merger talks between O’Melveny & Myers and Allen & Overy in the last few years and the turbulent merger between Clifford Chance and Rogers & Wells in 2000.

“The British firms have been in such a bad way” in the U.S., said one lawyer who is a longtime observer of the firms. “Their experiences in the U.S. have been very terrible. It’s drained revenue, drained resources.”

“But this is the first British firm [in several years] that is making a huge play, with a long-term commitment and putting a lot of money behind it, and they’re getting such quality people. It’s a momentum thing, but you’ve got to be willing to pay the price in compensation,” the lawyer added.

Alisa Levin, a New York recruiter who has worked with Freshfields in the past, said the firm “understands the name Freshfields doesn’t yet have the same resonance in New York as it does in London, and did what they had to do to correct that.”

But there are plenty of challenges ahead for Freshfields, which has already been in New York for 43 years. David Barnard, a law firm consultant at Blaqwell who was a longtime head of Linklaters’ North American operations, said breaking into the U.S. market requires a focused strategy. “And you will have to spend a lot of money,” he said. “It’s expensive and there’s no guarantee you’ll succeed.”

Barnard noted this isn’t Freshfields’ first attempt, pointing to Presser’s hiring in 2014 and the firm’s decadeslong presence in New York. “It would be great if they succeed, but it’s not an easy market to crack,” he said.

Most of the firm’s clients have “perfectly good U.S. advisers,” Barnard said. In order for Freshfields to effectively displace other law firms, its U.S. partners need to demonstrate they have the ability to service them at the same level as their existing U.S. lawyers.

“That means Freshfields has to do something special,” showing they have the right talent, bench strength and right experience to encourage a switch. “All of those are very difficult,” he added. “The fact that you are really happy with them in London is not a sufficient reason.”

Freshfields partners said their strategy is a long-term approach and there’s a lot of top-tier work to go around in the U.S. “We’re patient,” Klingsberg said, “and we’re proving ourselves more than one step at a time.” International reporter Varsha Patel contributed to this report. 

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