PE+QE made K&E. Will it last?

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In today’s newsletter:

• Kirkland & Ellis confronts a dealmaking slowdown

• The PE dealmaker who’s everywhere right now

• KKR jumps on a deal Carlyle snubbed

QE+PE= K&E

Chicago law firm Kirkland & Ellis has been among the biggest beneficiaries of the private capital boom over the past decade. The firm’s rapid growth has shaken up the historically conservative legal profession and upended Wall Street’s pecking order, DD’s Will Louch reports. 

In the bull market, the firm charges private equity clients hefty fees for advising on deals and fundraising. This translated into vast profits for the firm, which its charismatic former chair Jeffrey Hammes, described by one colleague as “a talent aggregator”, used to pick off the best lawyers from its competitors. 

The sums of money on offer at the firm are eye-watering, far surpassing their investment banking peers. Some people said top lawyers at Kirkland can earn as much as $25mn a year, even more than some of their buyout clients. 

Unlike at other law firms, which tie pay to seniority, the vast riches on offer can be obtained at a comparatively young age, if you are good enough. The rapid rise of Andrew Calder is a case in point. 

The Scottish lawyer, now in his mid-40s, joined Kirkland just under a decade ago to set up its Houston office. In a career trajectory unthinkable at an old-school New York or London firm, Calder rose through the ranks to become one of Kirkland’s best-paid lawyers and an influential member of its executive committee. 

But it hasn’t all been plain sailing. As rising interest rates stymie buyout dealmaking and fundraising, Kirkland is facing challenges it hasn’t had to contend with before. The scrappy upstart is now the incumbent and other firms are catching up, mimicking Kirkland’s business model and pay structure. 

Cravath, Swaine & Moore recently established a non-equity partner tier, a crucial driver of Kirkland’s mode, and in 2021 overhauled its “lockstep” model that rewards partners based on seniority rather than performance.

Earlier this year, US peer Paul, Weiss, Rifkind, Wharton & Garrison raided Kirkland’s offices on both sides of the Atlantic to poach more than a dozen of its partners. 

“Up until now, Kirkland was the final place of rest for a partner as no one could pay more,” says Melinda Wallman, a partner at legal recruitment firm Macrae. “[The Paul Weiss raid] has disrupted the myth that once you have reached Kirkland, you can’t go anywhere else.”

Gerry Cardinale’s busy year

The Telegraph newspaper, the UK production company behind shows like Fleabag and Call the Midwife, Italian football club AC Milan — these assets have one thing in common: at one point or another, they’ve come across the desk of Gerry Cardinale.

The former Goldman Sachs partner — who runs US private equity firm RedBird and launched Abu Dhabi-backed investment group RedBird IMI with former CNN boss Jeff Zucker last year — has emerged as one of the most ubiquitous private equity dealmakers on the scene. Cardinale’s secret? Leveraging his deep pool of connections across Wall Street, Hollywood and professional sports.

In the past few weeks alone, Cardinale has emerged as frontrunner to buy Fleabag producer All3Media via RedBird IMI and helped lead a potential deal to sell Paramount Global to Skydance, the studio behind films such as Top Gun: Maverick.

New York-based RedBird, which was founded in 2014, acquired AC Milan from Elliott Management for $1.2bn last year. It has also invested in a company controlled by NBA basketball star LeBron James, acquired NFL rival league XFL with film star Dwayne “The Rock” Johnson, and holds stakes in the company that owns the Red Sox baseball team and Liverpool Football Club.

Though Cardinale seems to be just about everywhere right now, it’s worth noting that many of his current endeavours are still up in the air. Some public officials have raised concerns about potential risks to press freedom in the UK if an entity that gets the majority of its funding from Abu Dhabi were to own one of the country’s most prominent newspapers.  

RedBird IMI is 75 per cent owned by Sheikh Mansour bin Zayed al-Nahyan’s International Media Investments despite being run by Zucker.

Redbird IMI has promised to maintain the Telegraph’s editorial independence but a handful of rival bidders — including hedge fund billionaire Paul Marshall, Daily Mail owner DMGT and News Corp — are hoping that regulators won’t be convinced.

KKR plots a buyout deal that Carlyle snubbed

Veritas Capital, the fast-growing private equity firm with deep ties to Washington, is standing on the verge of a deal that will see its investors earn a multibillion-dollar cash windfall.

The trade at hand: a sale of the healthcare technology company Cotiviti for up to $11bn, people involved in the matter told DD’s Eric Platt and Antoine Gara.

KKR has stepped up to the plate, months after rival Carlyle stood down from a deal. The price was closer to $13bn when Carlyle was circling. Some involved had pegged the valuation near $15bn before the regional banking turmoil this year.

KKR will have a very large teammate in the deal: Veritas itself. The New York-based firm is planning to sell 100 per cent of Cotiviti to KKR out of the two funds that initially invested in the technology business in 2016 and 2018, and then buy half of it back in one of its newer vehicles.

It avoids the use of a continuation fund — which have become increasingly popular but have also drawn criticism from pensions and endowments over potential conflicts and high fees.

If the sale is clinched, it would provide a good exit for investors shortly after Veritas struck another deal: a $5.3bn sale of consulting firm Guidehouse to Bain Capital.

A rally in credit markets is also providing Veritas another boon: competition is heating up between traditional banks on Wall Street and the burgeoning private credit industry to finance the Cotiviti deal. 

Private credit funds had won the mandate when Carlyle was involved, but banks are keen to win the deal this time around as their appetite for risky lending rebounds.

Job moves

• Sixth Street has hired Russell Wolff, an ESPN veteran who most recently led the network’s streaming platform, as a senior member of its sports and media investing team.

• Discover Financial Services has named TD Bank’s Michael Rhodes as chief executive. He will replace John Owen, who took over on an interim basis from Roger Hochschild after he was reportedly removed by the credit card group’s board in August.

Smart reads

Bad investments After Peter Doelger’s $50mn fortune fell to a fraction of that amount under JPMorgan Chase’s management, the bank claimed it was acting on his wishes to take risks. His doctors say he was slipping into dementia, Bloomberg reports.

Crypto void The legal travails of Sam Bankman-Fried and Changpeng Zhao have left a power vacuum at the top of the ailing crypto industry, The New York Times reports.

The winning formula A new league of athletes is emerging who battle for glory in an unexpected new arena: Microsoft Excel. The Wall Street Journal visited the esport’s top competition in Las Vegas to get a slice of the action.

News round-up

AstraZeneca strikes $1bn deal to acquire its first vaccine company (FT)

Reliance, Disney to Sign Off on India Media Merger Next Week (Bloomberg)

Dubai Sets Up New Fund to Hold Assets Worth Billions of Dollars (Bloomberg) 

Harvard board backs president amid campus antisemitism backlash (FT)

Hedge fund groups sue SEC in effort to block short-selling rules (FT)

Insurers built €3bn exposure to struggling Signa property empire (FT)

KKR hires bankers after approaches for its song rights catalogue (FT)

Choice Hotels goes hostile in Wyndham takeover battle (Reuters)

EY Is Laying Off us Partners Amid Tough Economic Conditions (Wall Street Journal)