How ‘magic circle’ agency Freshfields received large within the US | USAEMALL.com

One vice-presidential pick to start: Donald Trump has picked JD Vance, the Ohio Senator and former VC investor who has been critical about big mergers, as his running mate. One dealmaker reacting to the news said: “Wall Street will be begging for the return of Lina Khan after two months of the Trump-Vance administration.”

And a billionaire Republican backer: Ken Griffin has again become a top donor to the Republican effort to control the US Congress after giving $10mn to one of the party’s crucial fundraising groups in the second quarter of the year, according to sources familiar with the matter.

In today’s newsletter:

• How Freshfields won in the US

• The potential Google-Wiz deal’s big payday

• PE retreats from paying dividends by levering its funds

One ‘magic circle’ firm finally joins New York’s legal elite

Freshfields Bruckhaus Deringer appears to have achieved what was commonly thought to be the impossible: the law firm has become a serious contender in New York despite hailing from the City of London.

The “magic circle” firm has broken into the top 10 of North American firms by value of M&A deals, officially competing head-to-head with US rivals in one of the most lucrative corners of the legal market.

The latest coup emerged just over the weekend: Freshfields is reportedly advising Google on its potential $23bn acquisition of cyber security start-up Wiz. US rivals surely clamoured to advise on the deal.

This comes after Freshfields has already nabbed work on other megadeals that raised eyebrows, such as Johnson & Johnson’s $13bn takeover of Shockwave Medical.

The secret to its success? The law firm hasn’t just poached one-off superstars. Instead, it’s hired almost 50 top partners over the past five years — aka entire teams — from US competitors like Skadden, Davis Polk and Cravath.

Ethan Klingsberg, who was a longtime rainmaker at Cleary Gottlieb, is one great example.

The firm poached six other partners from Cleary alongside Klingsberg (who is very likely the one to thank for the latest Google assignment) so that the team could offer a whole menu of legal advice — not just on deals.

Of course, hiring some of the US’s top talent has been expensive. Industry insiders speculated that Klingsberg secured guaranteed pay of more than $10mn a year.

Freshfields has made the bet that the investment will pay off. While earlier efforts faltered, its latest attempt seems to be working, with revenues at its US corporate practice tripling since 2019.

While there’s a lot for the law firm to celebrate, there are still hurdles ahead.

“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?” said Damien Zoubek, a star M&A lawyer who joined Freshfields from Cravath.

He added that the firm had worked tirelessly to try to achieve “cohesive and common culture” instead.

The Wiz of DPI

Google’s parent Alphabet is in talks to acquire the cyber security start-up Wiz in a $23bn deal that would mark its largest takeover.

If a deal is agreed, it would tee up venture capitalists for one of their biggest windfalls in history — and at a time when they have had difficulty exiting investments.

Founded just four years ago by Israelis who served in an elite military cyber intelligence unit called 8200 and previously sold a start-up to Microsoft, Wiz has raised around $2bn in funding from VC funds.

Some of those investors are now eyeing multibillion-dollar paydays if the Alphabet acquisition goes through.

Winners would include VC funds such as Index — the company’s largest shareholder — alongside Sequoia, Insight and the Israeli early-stage fund Cyberstarts.

The company’s four co-founders led by chief executive Assaf Rappaport also each hold a roughly 10 per cent stake, according to a person familiar with the matter.

Wiz’s growth is head-spinning. DD’s Ivan Levingston and George Hammond broke the news of the company’s investment round earlier this year, in what turned out to be a $1bn fundraising at a $12bn valuation in May.

If the Google deal goes through, that would double its valuation in just two months.

Before the VCs start writing those celebratory LinkedIn posts though, they may want to wait for any potential deal to close.

The last time VCs — including Index — were ready for a massive acquisition, it was Adobe’s $20bn takeover of the venture-backed product design software company Figma. However, that deal came under scrutiny from competition regulators and was abandoned in December.

The possible Wiz-Alphabet deal has already attracted scrutiny on competition grounds from government officials even before being agreed.

“Seems like this deal would be one for the antitrust textbooks,” US Senator Richard Blumenthal posted on social media. “It deserves exacting scrutiny.”

Private equity retreats from NAV loan-fueled dividends

Buyout shops are turning away from a quick fix they used to return capital to their investors over the past couple of years.

The use of so-called net asset value loans to pay dividends fell by about 90 per cent during the second half of last year, according to specialist lender 17Capital.

It’s not that NAV loans — which are taken out at the fund level — are falling in popularity. In fact $16.4bn of NAV loans were taken out in 2023, up from $10bn the previous year. But only 3 per cent of the total was used to fund dividends in 2023, down from about a quarter in 2022, according to 17Capital.

It turns out investors were uncomfortable with the extra layer of leverage at a time when lacklustre dealmaking and IPO activity blunted private equity’s ability to return money to LPs.

The decision to shift away from NAV loans for dividends followed reporting by the FT that showed investors had misgivings about the borrowing, which had been used by a who’s who in the buyout industry. 

Vista Equity Partners, HG Capital and Carlyle Group all leaned on the tactic to pay dividends. 

The loans are collateralised by an entire fund’s individual investments and could be as large as a fifth of a fund’s overall value. They enabled PE firms to extract cash without having to sell a portfolio company.

But the debts exposed an entire fund’s investments to the possibility that just a few of its deals sour.

Steven Meier, chief investment officer of the New York City Retirement System, told the FT he worried some firms had turned to the deals because they were “desperate to appease underlying investors clamouring for more distributions and exits”.

The buyout industry has been able to use other manoeuvres to return cash recently: it’s been easier to raise debt against individual portfolio companies recently with markets rallying this year.

That’s meant PE firms have been able to pump cash back to investors through less complicated means, which they’re eager to do as they try to draw the same LPs back into their new funds.

Job moves

• Ardea Partners, a boutique bank founded by former Goldman Sachs bankers, is expanding in the UK. The bank has hired Sir Ian Cheshire as a senior adviser and Simon Lyons as co-head of Europe. Cheshire is the chair of broadcaster Channel 4 and property group Land Securities, while Lyons formerly worked for PJT Partners and UBS.

• Burberry chief executive Jonathan Akeroyd is leaving the company immediately after the group warned annual profits would fall short of expectations. He will be replaced with Joshua Schulman, the former chief executive of Coach and Jimmy Choo. 

• JPMorgan has rehired Terry-Ann Burrell as a vice-chair for healthcare investment banking, Bloomberg reports. She is currently the CFO of Beam Therapeutics.

• Davis Polk has hired Nick Caro as a partner for its sponsor finance practice in New York. He previously worked for Goodwin Procter.

• Jefferies has tapped Thierry Le Palud as chair for industrials in investment banking in London, Bloomberg reports. He was previously global chair for the equivalent unit at Barclays.

Smart reads

Persistent optimism ARK Invest has taken a beating after missing out on the AI boom. Despite it all, Cathie Wood is shockingly optimistic, Alphaville’s Robin Wigglesworth writes.

Skimpy Boy Summer Men’s fashion this summer is dominated by more skin and less fabric. Hear more about the rise of skimpy menswear on the FT’s Life and Art podcast.

Anti-ageing clubs A group of start-ups are pitching an anti-ageing regimen to the rich, Bloomberg reveals. But is there more to the “healthspan” movement than just making money?

News round-up

Goldman Sachs profits more than double to $3bn as deals rebound (FT)

Airbus and Thales explore space tie-up (FT)

Private equity has become hazardous terrain for investors (FT)

Inside billionaire investor Vinod Khosla’s high-risk green tech strategy (FT) 

Greensill investors challenge UBS redress offer over missing documents (FT)

Macy’s shares plunge after ending deal talks with activist investors (FT)

Lloyds cuts back on taxis and business class flights to save costs (FT)

How Nicolas Cage stays creative: A 7:30 bedtime and no whiskey (WSJ)