K&E / Kirkland and Ellis research

[traineeintraining]

Hi I'm doing my firm research and I was wondering if people could help on the two queries below
i. who would you say are K&E's main competitors? I'm seeing a lot of people compare Paul Weiss to them but I just don't think that true? I'm leaning more towards Latham & Watkins, STB and certain MC firms
ii. what would K&E's main weakness are?

 

[Amma Usman]

Prestige is a term with a notoriously elusive meaning so I will caveat the following by stipulating that this will just be my personal opinion based on my limited experience in the world of biglaw. Reasonable disagreement can and does exist about almost everything I will comment here.

That being said, the easiest part of the question to deal with is the ranking based on PE expertise:

1. Kirkland: based on their client base, growth, volume of deals, revenue and profitability practice, and the majority of industry rankings, Kirkland is the clear number 1 for PE reputation. While PE is definitely the most important practice area for Latham, PE is part of Kirkland's very identity as a firm. This can be seen from the way the two firms set up their London practice - with Latham going for a more full service and diversified model, whereas Kirkland only has practice areas meant to service PE clients.
2. Latham: Latham definitely has a strong lead over all of the others in PE - them and Kirkland are in a tier of their own.
3. Paul, Weiss/Weil: Whilst among the very best in PE, I would argue Paul, Weiss is in the immediate next category beyond Kirkland and Latham, together with the likes of Simpson Thatcher and Weil. All these firms have PE practitioners that are just as good as Kirkland's and Latham's, and work for equally prestigious clients and on equally high-end matters - in Paul, Weiss' case arguably more so, as their average deal value is higher than that of the two frontrunners. However, everyone else is simply too far away from Kirkland and Latham in terms of volume of mandates and size of PE teams to compete on global PE reputation.
4. Davis Polk/Skadden: Neither of the two has a similar focus on PE as the other firms I listed here, so it is harder to compare them. Based on most Chambers rankings, I would conclude that Davis Polk has the better US/global PE reputation. However, I would similarly conclude that Skadden is more renowned for PE work in London.

For your second question, it is a lot more difficult to come up with any sensible rankings, as general prestige depends on a multitude of factors - history, profitability, quality of practitioners and selectivity, size and growth, reputation in particular jurisdictions, client book, practice area/sector reputation etc. The five firms score differently on these different criteria, and there is no objective way to quantify results or weigh them. As such, I will only make some more general comments on how they compare and will not provide an actual ranking. I will also say that my personal view is that all of these firms are among the best in the world with differences in overall prestige being very slight and generally quite inconsequential for your career. If I were in a position to choose between any on the list, my decision would depend more on strength in the practice areas I am most interested in and on cultural fit.

• A first distinction can be made between Kirkland and Latham and the other three. Kirkland and Latham are not part of the New York-based 'white shoe' club associated with a long history of an elite practice. Their reputation has been largely built in the last 20 to 30 years and has been closely tied to the rise of the PE industry that the two have made an early bet on. Paul, Weiss, Davis Polk, and Skadden have been considered elite firms for a significantly longer time, which for some counts as an added factor of prestige. Weil is considered to be one of the top New York firms, but it arguably does not have as much historical prestige as the other three - which can be seen from the fact that it has traditionally been included in the V10 (the list of the 10 most prestigious US firms compiled by Vault each year).
• Kirkland/Latham's main selling point prestige-wise is based on their size and brand - because of the volume of mandates they work on and their astronomical revenues. If you speak to any person in the world of international business, their names will probably be best known. On the other hand, Paul, Weiss and Davis Polk run a smaller but arguably more high-end focused practice, at least judging from their average deal sizes and comparative deal volumes. Some also argue, at least for their US practice, that the two tend to have more selective recruitment than Kirkland/Latham; the size of the latter two means that they have a lot more slots to fill, which means they sometimes cannot only accept the very highest-achieving candidates. Skadden is at the midpoint between the quality-focused and size-focused reputations, as it has a higher volume and revenue than Paul, Weiss/Davis Polk but also tends to be more focused on the high-end segment than Latham and Kirkland.
• For recent profitability, which is arguably the most important factor for prestige, Kirkland comes first (alongside Wachtell and some US litigation boutiques). However, compared to the others, Kirkland also has a significantly more expanded non-equity partner tier, which probably helps in keeping equity ranks lean. Davis Polk and Paul, Weiss (alongside the likes of Sullivan Cromwell and Simpson Thatcher) would follow in the immediate next tier, with an average PEP hovering around $6-7 million in recent years. Latham and Skadden are just bellow that, sitting in the $5.5-6 million region. Weil comes last, around the $4-5 million range.
• Finally, their prestige is very different on a practice-area specific basis. Skadden clearly has the best reputation for corporate M&A - arguably, it is for M&A what Skadden is for PE. Davis Polk probably has the best reputation for capital markets and finance, being the only true "Wall Street firm" in the group. As said before, Latham and Kirkland dominate in the PE space. Weil is among the best for PE and restructuring. Paul, Weiss is amazing for PE and is the best in the group for disputes work in the US (and particularly for white collar crime).

Hi I'm doing my firm research and I was wondering if people could help on the two queries below
i. who would you say are K&E's main competitors? I'm seeing a lot of people compare Paul Weiss to them but I just don't think that true? I'm leaning more towards Latham & Watkins, STB and certain MC firms
ii. what would K&E's main weakness are?

Hey, I have quoted @Andrei Radu ’s great post on this!

 

[Andrei Radu]

Hi I'm doing my firm research and I was wondering if people could help on the two queries below
i. who would you say are K&E's main competitors? I'm seeing a lot of people compare Paul Weiss to them but I just don't think that true? I'm leaning more towards Latham & Watkins, STB and certain MC firms
ii. what would K&E's main weakness are?

Hi @traineeintraining for the first question the first way we would look for Kirkland's general competitors will be to identify those that have (i) the best PE and (ii) the best restructuring practices (as those are its areas of focus and main revenue generators in London). Thus, we would look at Latham, Weil, Linklaters, Clifford Chance, and Freshfields. To deepen the analysis, then we could look at other important features of the firm, such as profitability, client base, and culture. Since a significant part of Kirkland's client base is US-based (as opposed to that of the MC, which tends to be more European) and since its profitability is much above that of MC firms, we would then focus more on its US rivals. As such, we could the broaden the list from Latham and Weil to the likes of Simson Thacher and Paul, Weiss. However, if we also account for size, growth, and transactional volume when comparing the firms, the one rival that stands out before all others is Latham.

For your second question, the main weaknesses I would identify are the following:

1. Insufficiently hedged against risks in the PE industry: While Kirkland has an exceptional restructuring practice, which is know for being counter-cyclical and thus bringing in work and revenues when there is a market downturn, Kirkland's client base in this practice area consists in large part of the same PE firms that it services on the corporate front. Thus, an argument can be made that Kirkland is not well-hedged against the risks affecting the private equity industry as a whole. This is not something that should be simply brushed aside - a number of FT articles this year have highlighted how complex the interlinked world of PE and its debt structure is, and how little is know and/or controlled by regulators. These are features that are reminiscent of the dealmaking context in the world of banking prior to its collapse during the Great Financial Crisis. While PE is of course a very different industry and exposed to very different risks, the idea that it is not immune to systemic failures is one that should be considered.
2. Go-getter culture makes talent retention difficult: Kirkland is infamous for its meritocratic culture that celebrates and rewards individual achievement, and it is one of the features that has made the firm as successful as it is. Nonetheless, I would argue this is a double edged sword. At the associate level, since Kirkland's pay is for the most part in line with that of the Cravath scale-paying firms (bar some bonuses tied to hitting exceptionally high target hours). However, the firm has a reputation for a lack of W/L balance and has path to partnership know to be an extremely demanding, even by big law standards. As such, it is possible that it will miss out on students who have the option to go to rivals that pay just as well and are known for a less exacting culture. On the partner side, the focus on rewarding the rainmakers and the almost completely merit-based compensation system could lead to a lack of a feeling of loyalty towards the firm. This should make poaching from rivals with better offers harder to ward off, and perhaps the Paul, Weiss raid can be seen as an example of that.

 

[traineeintraining]

Hi @traineeintraining for the first question the first way we would look for Kirkland's general competitors will be to identify those that have (i) the best PE and (ii) the best restructuring practices (as those are its areas of focus and main revenue generators in London). Thus, we would look at Latham, Weil, Linklaters, Clifford Chance, and Freshfields. To deepen the analysis, then we could look at other important features of the firm, such as profitability, client base, and culture. Since a significant part of Kirkland's client base is US-based (as opposed to that of the MC, which tends to be more European) and since its profitability is much above that of MC firms, we would then focus more on its US rivals. As such, we could the broaden the list from Latham and Weil to the likes of Simson Thacher and Paul, Weiss. However, if we also account for size, growth, and transactional volume when comparing the firms, the one rival that stands out before all others is Latham.

For your second question, the main weaknesses I would identify are the following:

1. Insufficiently hedged against risks in the PE industry: While Kirkland has an exceptional restructuring practice, which is know for being counter-cyclical and thus bringing in work and revenues when there is a market downturn, Kirkland's client base in this practice area consists in large part of the same PE firms that it services on the corporate front. Thus, an argument can be made that Kirkland is not well-hedged against the risks affecting the private equity industry as a whole. This is not something that should be simply brushed aside - a number of FT articles this year have highlighted how complex the interlinked world of PE and its debt structure is, and how little is know and/or controlled by regulators. These are features that are reminiscent of the dealmaking context in the world of banking prior to its collapse during the Great Financial Crisis. While PE is of course a very different industry and exposed to very different risks, the idea that it is not immune to systemic failures is one that should be considered.
2. Go-getter culture makes talent retention difficult: Kirkland is infamous for its meritocratic culture that celebrates and rewards individual achievement, and it is one of the features that has made the firm as successful as it is. Nonetheless, I would argue this is a double edged sword. At the associate level, since Kirkland's pay is for the most part in line with that of the Cravath scale-paying firms (bar some bonuses tied to hitting exceptionally high target hours). However, the firm has a reputation for a lack of W/L balance and has path to partnership know to be an extremely demanding, even by big law standards. As such, it is possible that it will miss out on students who have the option to go to rivals that pay just as well and are known for a less exacting culture. On the partner side, the focus on rewarding the rainmakers and the almost completely merit-based compensation system could lead to a lack of a feeling of loyalty towards the firm. This should make poaching from rivals with better offers harder to ward off, and perhaps the Paul, Weiss raid can be seen as an example of that.

Hi Andrei thank you so much this is such a detailed answer. I'm trying to prepare for a how the firm distinguishes it self from competitors questions in this case Latham. As you flag they are pretty similar in terms of transaction value, size and profitability so so far I was thinking key differentiators would be culture, that Latham is a full service firm while K&E focus on their PE offering & number of office/ global reach. However I'm struggling in how to spin KE not being full service and having less global reach as positives, grateful if I could get your thoughts on this? / more generally how to different KE against Latham.

 

[Andrei Radu]

Hi Andrei thank you so much this is such a detailed answer. I'm trying to prepare for a how the firm distinguishes it self from competitors questions in this case Latham. As you flag they are pretty similar in terms of transaction value, size and profitability so so far I was thinking key differentiators would be culture, that Latham is a full service firm while K&E focus on their PE offering & number of office/ global reach. However I'm struggling in how to spin KE not being full service and having less global reach as positives, grateful if I could get your thoughts on this? / more generally how to different KE against Latham.

I think the key reason why Kirkland does not have a truly full service offering and why it has not expanded in a greater number of jurisdictions is the same one, namely, that it would not be conducive to increasing profitability. Firstly, Kirkland consciously targeted growth in jurisdictions where clients are happy to pay high legal fees - as otherwise, it would be running a risk of the expansion actually being dilutive to profit pools. Similarly, Kirkland has focused its investments in highly-profitable practice areas, such as PE, lev fin, capital markets, restructuring etc - as clients are usually willing to pay higher legal fees here than in areas like real estate or employment.

This narrower scope (both jurisdictionally and practice-area wise) also means Kirkland can invest more money into poaching the very best talent and growing the best teams as compared to Latham, who has to spread investments wider. This gives Kirkland an edge in both market share and expertise in these practice areas (particularly in PE and restructuring), which is well-recognized by most market commentators. It also partially explains Kirkland's better recent financial performance, as it has grown more both in terms of revenues and in terms of average PEP. In fact, while you may think their profitability is quite similar in that both are at the top of the market, there is still a sizeable difference of almost $2.5m, with Kirkland's average PEP sitting at $7.96m (second only to Wachtell globally and first in London) while Latham's is at $5.5m (behind a number of other US competitors like Paul, Weiss, Sullivan & Cromwell, Davis Polk, and Simpson Thatcher). This difference will make Kirkland's job in retaining top talent and in poaching rainmaker partners from rivals substantially easier than Latham's (who in fact has been losing a several partners to rivals recently).