- Catching up to Kirkland?
Catching up to Kirkland?
Why private equity's firm of choice may be losing its edge
Happy Wednesday. Here’s what we’ve got today…
A single headline deal and a quick check-in on Kirkland & Ellis
The deal sheet, plus Skadden’s 2024 outlook
1. General Atlantic nears public listing.
• General Atlantic, a growth equity-focused firm with $77 billion under management, has confidentially filed for an initial public offering that could come as soon as early 2024.
• The move follows similar public markets preparation from CVC Capital Partners and HPS Investment Partners, signaling a potential opening for firms that may have postponed public listings when markets cooled off early in the year.
• For General Atlantic, part of that preparation has included build-out of the firm’s strategies beyond its core focus. Earlier this year it completed the acquisition of private credit firm Iron Park Capital, unlocking another avenue with which to grow the firm’s asset base and deliver public shareholders more of the recurring management fees they love.
• The firm will join a cohort of public peers that’s enjoyed stellar year-to-date performance, with firms like KKR, Blackstone, Partners Group, and Bridgepoint nearing high-water-marks set in 2021 and 2022.
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A Financial Times feature published earlier this week centered on a group that’s been nearly as impacted as private equity by the slowdown in dealmaking: Kirkland & Ellis.
Kirkland has become synonymous with private equity legal advisory, riding the wave of alternative asset growth over recent decades to position itself as one of the industry’s largest (and most profitable) firms.
Kirkland’s ties to private equity date nearly to the industry’s inception. Jack Levin, at the time a young Kirkland attorney, recounted an early private equity assignment in a Chicago Daily Law Bulletin article from 2005:
Stanley Golder would go on to found Chicago buyout firm GTCR, with Bruce Rauner later joining and adding his name to the shingle.
The firm’s ascendancy has been partially fuelled by a structure that had, until recent years, been unique within white-shoe law firms (if you consider rough-around-the-edges Kirkland part of that category). Rather than requiring junior staffers to wait until a limited number of partner seats opened up, Kirkland prioritized promotions based on a more meritocratic system.
That provided an opportunity for aggressive young lawyers to leapfrog older colleagues as they progressed through the ranks, reaping the benefit of early success without having to wait until the end of their careers.
“It’s run like a business and not like a club. A lot of law firms are run like clubs. One of the unique things about Kirkland . . . you don’t have to wait until you are 60. You can be rewarded really early on and it can give you a sense of energy,” recounts a pair of Kirkland partners to the FT.
That gave the firm a platform with which it could easily poach top talent from rivals. Junior and mid-level lawyers could decamp to Kirkland and achieve their payday nearly immediately, rather than sticking it out for an uncertain future chance at the partnership with their current firm.
A clear driver of Kirkland’s topline growth, the approach has, by all accounts, not had a positive impact on firm culture or work-life balance.
Those that endure the slog have been rewarded, with compensation packages that previously dwarfed what was on offer at rivals, many of whom struggled to unlock the private equity fee source to the extent Kirkland had managed.
Equity partners are paid based on the number of shares allocated and the value assigned to those shares, which fluctuates each year based on overall firm performance. A single share is currently worth nearly $85,000.
The number of shares held by each partner is negotiated every other year, and partners are able to view a complete list of the stakes held by their peers.
That number varies greatly, though a ten-year veteran was reported to have collected 300 of them—a payout of more than $25 million per year.
As a whole, the firm raked in around $6.5 billion in revenue last year, with $3.5 billion of that booked as profit. Average equity partner packages were said to hover around $7.5 million, per The American Lawyer.
On top of standard compensation, a unique perk of Kirkland’s tight relationships with many of its private equity clients is the extent to which the firm’s senior leadership is able to co-invest. The FT reports the practice is so widespread that the firm operates its own internal secondary market, allowing partners to trade their stakes amongst one another.
This year, however, brought some at the firm back down to Earth, with many participants in the co-investment schemes booking markdowns on their positions for the first time.
No Longer Differentiated?
The firm’s success has, to some degree, put a target on its back. Rivals have restructured their promotional structures to more closely resemble Kirkland’s relative meritocracy, ditching the seniority-focused lockstep model that had been status quo.
Those revamps have lessened Kirkland’s edge. The firm, for the first time, is facing talent loss of its own, with competitors proving successful in luring away top litigators. This year, Paul Weiss poached more than a dozen Kirkland partners in an operation they’d internally dubbed Project Springsteen.
Kirkland is also facing a meaningful slowdown in private markets activity for the first time since the financial crisis. That could pose an issue with many new hires benefitting from guaranteed compensation packages, a potential drag on profitability.
Ask Kirkland, however, and they would tell you that their competitive advantages run much deeper than their remuneration.
Client pitches frequently cite an internal database built from the firm’s past advisory assignments, that, Kirkland says, provides an unparalleled resource to track deal terms and intel. The firm has even gone as far as to hire data scientists from the University of Chicago to build out analytics capabilities to make full use of its proprietary info.
It may be marketing fluff, but it has apparently done enough to catch the ire of market participants.
The Institutional Limited Partners Association, an allocator-focused industry group, released a report earlier this year condemning Kirkland and its peers for their role in securing favorable terms for fund managers, at the expense of their limited partners.
Either way, there’s little doubt that Kirkland will continue as a leading private equity advisor for the foreseeable future.
• Saudi Telecom Co. is considering a bit for Altice's Portuguese business, joining a field of private equity suitors, including Apax, Apollo, CVC, and Warburg Pincus, that are interested in the unit that could be worth around €8 billion.
• Carlyle is preparing to exit its stake in Acrotec, a medical device contract manufacturer that could be valued at more than $4 billion.
• KKR may be nearing a deal to acquire Iris Software, an enterprise IT and software provider, from Hg for around £3 billion.
• Centerbridge and Vistria Group are selling Help at Home, a Chicago-based at-home care provider that could be worth more than $3 billion.
• Epassi Group, backed by TA Associates and Warburg Pincus, acquired Exercite, a provider of corporate health and wellness benefit solutions, from Waterland for more than €1 billion.
• EQT Infrastructure has agreed to buy a majority stake in Heritage Environmental Services, a provider of compliant waste management, from The Heritage Group.
• Formstack, backed by PSG and Silversmith Capital Partners, acquired rival forms provider Formsite.
• KKR is in talks to acquire a 50 percent stake in Veritas Capital’s Cotiviti healthcare software business at a valuation of up to $11 billion.
• Prometheus Group, backed by Genstar Capital, acquired MobilOps, a Bellevue-based provider of mobile plant management software.
• RedBird IMI has entered exclusive negotiations to acquire All3Media, a U.K. television production company owned by Warner Bros Discovery and Liberty Global.
• Docker has acquired AtomicJar, an integration testing specialist with a focus on containerized delivery, that’s received venture backing from firms including Insight Partners, Boldstart Ventures, Tribe Capital, and Chalfen Ventures.
• AstraZeneca (LSE: AZN) agreed to acquire Seattle-based vaccine developer Icosavax for up to $1.1 billion, or $15 per share, with $5 per share of future contingent value rights.
• Bristol-Myers Squibb (NYSE: BMY) agreed to pay over $8 billion to secure exclusive licensing rights for Redmond, WA-based SystImmune's experimental cancer drug, BL-B01D1, an EGFRxHER3 bispecific antibody-drug conjugate.
• Choice Hotels International (NYSE: CHH) is launching a hostile takeover offer for Wyndham Hotels & Resorts following Wyndham’s earlier rejection of its $7.8 billion offer.
• ConcertAI acquired CancerLinQ, an oncology data and technology subsidiary of ASCO.
• Mirae Asset Financial Group has agreed to acquire Indian brokerage Sharekhan from BNP Paribas.
• PricewaterhouseCoopers has agreed to buy San Jose-based Surfaceink, a hardware development firm servicing major tech brands.
• R1 RCM (Nasdaq: $RCM) has agreed to buy revenue cycle management firm Acclara from Providence, a national health system, for $675 million cash and warrants totaling 12.2 million shares at a strike price of $10.52.
• Star Bulk Carriers has agreed to buy rival dry bulk shipper Eagle Bulk Shipping for $2.1 billion, creating the fifth-largest shipping fleet.
• Accel-KKR has invested in Ntracts, a contract lifecycle management solution for healthcare organizations.
• Apollo is weighing a bid for Pension Insurance Corporation in a deal that could be valued at around £5 billion.
• Bain Capital agreed to acquire a majority stake in Eleda, an infrastructure development and services firm from Altor in a deal valued at around at around €1.5 billion.
• Breitling, backed by Partners Group, has agreed to acquire Universal Genève, a luxury Swiss watch brand, from Stelux Holdings.
• Harvest Partners acquired Road Safety Services from Parallel49 Equity.
• InfraRed Capital Partners agreed to buy a minority stake in Madison Fields Class B Member and Brazos Wind Holdings from Shell (LSE: SHEL) and Savion.
• Walgreens Boots Alliance (Nasdaq: WBA) is considering a spin-off of its U.K. pharmacy operations, which could be worth around £7 billion.
• Apex Fintech, a clearinghouse and trade execution provider, has confidentially filed for IPO. This follows the cancellation of its proposed $4.7 billion SPAC merger in 2021.
• Changxin Memory Technologies, a Chinese chipmaker, has announced its intent to delay a planet Shanghai IPO in favor of raising additional private funds at around a $19.5 billion valuation.
• Mistral AI, a French generative AI startup, raised €385 million in new funding. Andreessen Horowitz led, with participation from Lightspeed Venture Partners, Salesforce, BNP Paribas, CMA-CGM, General Catalyst, Elad Gil, and Conviction.
• Aye Finance, an Indian SMB-focused fintech, raised $310 million in Series F funding led by British International Investment, with participation from A91 Partners and Waterfield Fund of Funds.
• Bicara Therapeutics, a developer of novel immuno-oncology treatments, raised $165 million in Series C funding co-led by Braidwell and TPG. Other participants included existing investors Deerfield Management, Fairmount, and Aisling Capital.
• Essential AI, a startup working to revolutionize human-computer collaboration through AI, raised $56.5 million in Series A funding. March Capital led, with participation from Google, AMD, NVIDIA, Franklin Venture Partners, KB Investment, and Thrive Capital.
• True Anomaly, a developer of space situational awareness software and hardware, raised $100 million in new funding from Riot Ventures, with participation from Eclipse, ACME Capital, Menlo Ventures, Narya, 645 Ventures, Rocketship.vc, Champion Hill Ventures, and FiveNine Ventures.
• Armada, a provider of edge computing hardware and software, raised $55 million at a valuation nearing $250 million. The round was led by 8090 Industries, with participation from Felicis, Contrary Capital, Marlinspike Partners, Valor, and Koch Industries.
• Shinobi Therapeutics, a biotech developing immune-evading stem cells for cancer treatments, raised $51 million in Series A funding. EQT Life Sciences, F-Prime Capital, and Eight Roads Ventures co-led, with participation from Astellas Venture Management, Fast Track Initiative, JIC Venture Growth Investments, and D3.
• Tacto, an AI-enabled supply chain solutions provider, raised €50 million in new funding co-led by Sequoia Capital and Index Ventures, with participation from Visionaries Club, Cherry Ventures, and UVC Partners.
• Stayntouch, a provider of a cloud-based hotel property management platform, raised $48 million from Sixth Street Growth.
• Freya Biosciences, a women's health biotech focused on infertility treatment, raised $38 million in Series A funding. Sofinnova Partners and OMX Ventures co-led, with participation from The Export and Investment Fund of Denmark, Angelini Ventures, Mike Jafar Family Office, CE-Ventures, Corundum Systems Biology, and Indaco Venture Partners.
• Zuper, a provider of field service management solutions, raised $32 million in Series B funding. FUSE led, with participation from Prime Ventures, Kin Ventures, Peak XV Partners, Zendesk, and Sequoia Capital India.
• Global Futures & Options Xchange (GFO-X), a London-based cryptocurrency derivatives platform, raised $30 million in Series B funding led by M&G Investments.
• Vammo, a Brazil-based battery swap startup that's focused on electric motorcycles, raised a $30 million Series A. Monashees led, with participation from 2150 and Maniv Mobility.
• Lendo, a Saudi loan crowdfunding platform, raised $28 million in Series B funding from Sanabil Investments, Shorooq Partners, and AB Ventures.
• Antabio, a French biotech developing new antibiotics, raised €25 million in Series B funding from AMR Action Fund, the EIC Fund, BNP Paribas Développement, Relyens Innovation Santé / Turenne Capital, and previous backers IRDI Capital Investment and Christophe Ricard.
• Copia Global, an e-commerce platform focusing on underserved African consumers, raised $20 million in Series C extension funding from Enza Capital, LGT, Goodwell, DFC, DEG, Elea, Perivoli, Sorenson, and Squared Impact.
• Pivot, a developer of procurement and spend management software, raised $21.6 million in Series A funding from Visionaries, Emblem, Anamcara, and Oliver Samwer.
• Verve Motion, a developer of wearable robotics focused on industrial worker safety, raised $20 million in Series B funding led by Safar Partners, with participation from existing investors Cybernetix Ventures, Construct Capital, Pillar VC, OUP, and Frederic Kerrest and John McEleney.
• Guardz, an Israeli developer of an all-in-one cybersecurity and cyberinsurance platform for managed service providers, raised $18 million in Series A funding led by Glilot+, with participation from ClearSky, Hanaco Ventures, iAngels, and GKFF Ventures.
• Koa, a Swiss-Ghanaian company producing cacao-based food products, raised $15 million in Series B funding. Mirova's Land Degradation Neutrality Fund and the Regenerative Growth Fund 1 co-led, with participation from Haltra and other new backers.
• Durable, a developer of AI-powered small business tools, raised $14 million in Series A funding led by Spark Capital, with participation from Torch Capital, Altman Capital, Dash Fund, South Park Commons, Infinity Ventures, and Soma Capital.
• Oaktree raised $3 billion for a new special situations fund.
• Ara Partners raised $3 billion for its third fund and related co-investment entities.
• Seraya Partners raised $800 million for a digital infrastructure and energy transition fund.
• Rock Island Capital raised $240 million for its fourth lower middle market buyout fund.
• Daily Mail and General Trust, the U.K. media brand, is launching a $200 million early-stage energy transition fund called Renown Capital Partners, in partnership with Moore Capital Management.
• Atlantic Equity Partners is raising $150 million for a decarbonization-focused real estate fund.
• Vistara Growth held a $150 million first close for its fifth fund, targeting a total raise of $400 million.
1. The year ahead, per Skadden.
• Skadden has released its 2024 insights report, hitting its views on topics including corporate M&A, antitrust, and ESG. — Skadden’s 2024 Insights
2. A European update.
• Proskauer, alongside Middleground Capital, Nordic Capital, and Schroders Capital, sits down with PEI to discuss the current state of European middle market private equity. — Facing a Stalemate: A Special Roundtable, via Proskauer
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