Dennis Block's 1998 departure from Weil, Gotshal & Manges LLP to Cadwalader, Wickersham, & Taft LLP was one of the more acrimonious lateral moves in recent legal history, but all three parties managed to prosper in its aftermath. Weil continued its run as a top-tier M&A firm, while Block, one of the notable legal M&A rainmakers of his era, worked on a series of blockbuster deals for Pfizer Inc. and other major clients and generated tens of millions of dollars of fees annually for Cadwalader.
The lawyer's recent move to Greenberg Traurig LLP, an 1,800-lawyer firm based in Miami with a 250-lawyer New York office, has generated far less heat. Cadwalader chairman W. Christopher White publicly thanked Block for his years of service at the firm, while Block refrained from talking to the press about the move. But like any lateral hire, this one has its risks.
That's not because of any apparent diminution in his talents, although at 69, Block, a graduate of Brooklyn Law School in 1967, will probably not be moving on again. Block's reputation as a contentious, often difficult personality notwithstanding, "He's what we all want to be as a lawyer -- a trusted adviser on a broad range of topics," says one attorney at a rival firm. "He's a good lawyer, he's really smart, and he knows client service really well." Those talents have allowed Block to counsel clients on a broad range of issues rather than work on only their M&A transactions and thus to generate lots of business not just for himself but for the lawyers around him.
Pfizer was Block's core client at Cadwalader. He worked on at least a dozen publicly announced deals for the pharmaceutical giant during his 13 years at Cadwalader, many of them blockbusters, including Pfizer's $90 billion hostile takeover of Warner-Lambert Co. in 2000; its $60 billion purchase of Pharmacia in 2002; the $16.6 billion sale of its over-the-counter consumer healthcare brands to Johnson & Johnson; and its $68 billion purchase of Wyeth in 2009. In the past two years, Block represented Pfizer on its $3.6 billion purchase of King Pharmaceuticals Inc. and on the $2.8 billion sale of its Capsugel unit to Kohlberg Kravis Roberts & Co. LP.
But last December's ouster of Jeffrey Kindler as Pfizer's CEO, a move fueled by Pfizer's slow growth (one consequence of its enormous M&A-driven bulk) and sputtering development of new products, may pose a challenge to Block, who was reputedly quite close to the CEO. Current Pfizer CEO Ian Read has spent his entire career at the company, but general counsel Amy Schulman, who may have a major say in hiring outside lawyers, has not; she joined from DLA Piper in 2008. It's now an open question whether Pfizer will be as aggressive a consolidator as in the past and whether Block will automatically get the assignments it does produce as well as mandates from Pfizer beyond M&A.
That's the risk any big-time M&A adviser faces. Block lost another major client when Bear Stearns Cos. was sold to J.P. Morgan Chase & Co. three years ago. Although Bear itself wasn't an aggressive acquirer, it generated financial advisory work for Block and allowed him to build relationships with M&A bankers.
At Greenberg Traurig, Block will be reunited with Bruce Zirinsky, a bankruptcy partner who joined the firm from Cadwalader at the start of 2009 and also practiced with Block at Weil. "Dennis' relationship with Bruce was a very important driver of his move," says Richard Rosenbaum, Greenberg's CEO.
Last year, Greenberg Traurig lured M&A partner David Schwartzbaum from Latham & Watkins LLP. His specialty is representing banks on M&A deals, a category in which Greenberg Traurig ranked fifth in the first half of this year. The firm worked on seven deals of more than $100 million in that time, which ranked it 33rd on The Deal Pipeline's law firm league tables. Rosenbaum says that the firm will continue to hire M&A lawyers laterally.
Block's departure creates a significant hole at Cadwalader, where he generated most of the blockbuster deals during his tenure and a good percentage of the smaller ones. In addition to his Pfizer work, Block handled a range of other deals, from Procter & Gamble Co.'s $60 billion purchase of Gillette Co. in 2005 to DPL Inc.'s $4.7 billion agreement to sell to AES Corp. earlier this year.
Cadwalader may look to the lateral market to replace Block. The firm
lured private equity partner R. Ronald Hopkinson from Latham
& Watkins in 2008 to head its private equity practice and in May
recruited European Union competition specialist Alec Burnside in
Brussels from Linklaters LLP. "Cadwalader has been building a
deep bench in its core practice areas over a significant period of time.
We have exceptional M&A and transactional talent," says a
spokesman. -- David Marcus
While the big banks lick their wounds after yet another round of layoff carnage, the employment picture appears more bullish at Jefferies & Co., which under CEO Richard Handler continues to poach Wall Street's casualties.
Since the financial crisis, Jefferies has been aggressively hiring, and, according to some Wall Street recruiters, offering multiyear bonus guarantees even as its competitors tighten compensation and trim staff. The rapid and costly expansion could put the firm at risk if M&A and other market-dependent businesses slow down, but analysts say Jefferies' diverse revenue stream has provided it with an ample safety net.
Jefferies "has been among the most aggressive" investment banks in regard to payment of multiyear guarantees, says Russ Gerson, CEO of New York headhunter Gerson Group. "They are making a bet that the business is going to be there to support it."
Jefferies has grown its staff by about 42%, to 3,222, as of the second quarter of this year, from 2,272 in late 2008, according to SNL Financial LC. And it more than doubled its assets, to nearly $41 billion, in that period. At the same time, the top three U.S. investment banks by assets -- Bank of America Corp., J.P. Morgan Chase & Co. and Citigroup Inc. -- grew their staffs at an average of 12%. Meanwhile, Jefferies' closest competitor by asset size, Raymond James Financial Inc., expanded staff by about 4.3%.
What's more, the New York-based firm has set itself apart by offering two- to three-year bonus guarantees, while most other banks have typically offered only one-year guarantees, says Gary Goldstein, president of Whitney Partners, a recruiting firm. The spending has resulted in a compensation-to-revenue ratio of 59% for the first half of 2011, higher than the high 40s to low 50s percentages at most larger banks but somewhat in line with boutique firms that generally have lower overhead costs. (For more on Wall Street compensation, see story, page 32.)
A Jefferies spokesman would not comment on compensation. However, an executive at the bank told the Financial Times in March that guarantees have never exceeded two-year limits. And the firm's somewhat weighty compensation costs do not seem to be squeezing its bottom line. Jefferies reported net income for the first half of 2011 of $168 million compared with $116 million one year ago, thanks to a roughly 50% jump in revenues to $1.5 billion.
Goldstein says Jefferies has mitigated its hiring risk because it is diversifying by "building a number of verticals and a capital markets business." That puts it in contrast to a firm like Greenhill & Co., which has also bulked up on bulge-bracket talent, but is heavily focused on M&A advisory. As a result, it logged a net loss of $1.6 million for the first quarter of 2011, due in part to a 13% increase in compensation costs. Greenhill did, however, recover in the second quarter, posting a roughly $21.5 million profit on a sharp increase in advisory fees to $85.6 million from about $62 million a year ago.
A source argues that compensation and contract terms have not been the driving forces behind the firm's ability to attract talent. He says bankers from large firms have sought to join Jefferies because its "internal culture is closest to the culture that most of these people chose 10 to 25 years ago when they decided to go into investment banking or trading." He explains that Jefferies focuses on "the capabilities of its people" rather than its "balance sheet capabilities," which is the direction that the larger banks have taken.
Still, Jefferies' substantial balance sheet -- it has nearly triple the assets of Raymond James -- provides ex-big-firm bankers a certain comfort, while its status as a nonbank financial services company outside of the bank regulatory radar allows it more compensation flexibility.
"Of any of those [investment banks] out there, Jefferies has been better and more opportunistic in taking advantage of distress in the market," says an analyst who requested anonymity. "Jefferies has bought whole desks and had whole lift-outs, and has been able to get teams of bankers in place and then hire around them."
That strategy took off two years ago under new chairman of investment banking Benjamin Lorello and head of healthcare investment banking Sage Kelly. Lorello, former head of healthcare at UBS, and Kelly, a managing director in the UBS healthcare group, brought 34 other UBS bankers to Jefferies. The firm also hired Frank Cicero from Barclays Capital to launch a financial institutions group in late 2010. Cicero brought managing director Jason Reid with him. Other hires include global head of industrials investment banking David Bradley from Blackstone Group LP, Robert Arrieta from J.P. Morgan Chase and Robert Bayer Jr. from Bank of America Merrill Lynch.
The firm is now filling in subsectors within its industry groups. It is recruiting commercial banking and insurance specialists for its financial institutions group, chemical pros for its industrials group and cleantech coverage bankers for its technology group, says the source. Another growth area is Europe, where in March Jefferies hired Peter Bacchus as joint head of European investment banking and global head of metals and mining from Morgan Stanley.
Jefferies also kicked off an Asian growth strategy this year, hiring Christie Ju in January as a managing director and head of Hong Kong and China equity research from Bank of America Merrill Lynch. In March Jefferies nabbed Naomi Fink as a Japan equity strategist, from Bank of Tokyo-Mitsubishi UFJ Ltd.
Keefe, Bruyette & Woods Inc. analyst Lauren Smith notes that Asian recruits are pricey, as the region has a relatively limited local talent pool and is "increasingly ripe for capital raising and M&A, so everybody wants to be there." But Jefferies has the financial resources to hire competitively, she adds.
"Through every other downturn, Jefferies has seized the opportunity to hire through chaos," Smith says. But the firm's latest round of hires differs a bit from the post-crisis recruiting of 2008 and 2009. "People just wanted a job then, so it was a lot easier to recruit and no one had to pay up. But now, as the dust has settled, what people pay for talent has become a lot more competitive." -- Michael Rudnick