How Wachtell operates? Forum

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Askhanar

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How Wachtell operates?

Post by Askhanar » Sun Aug 28, 2022 11:58 am

Hi there,

I'm curious to understand how Wachtell became the #1 law firm in NY and what made them remain so.
  • What they are doing right?

    How do they operate (business model)?
    What's unique in them?
    What do lawyers do differently at Wachtell compared to other law firms?
    How do they reach out and retain clients?
    Other things that you could add about them?
To my awareness, I remember reading that Martin Lipton's father was preparing him to be an Investment Banker but he was more interested in law. So I assume that when he started the firm he implemented an IB culture which can be felt even nowadays (especially based on their areas of expertise).

If anyone could give an extensive response to those questions I would appreciate it.

Lopodop

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Re: How Wachtell operates?

Post by Lopodop » Mon Aug 29, 2022 5:07 am

In Flom’s case, he was born in a “demographic trough” when there were few rivals for coveted school spots. His Jewish immigrant parents had skills that allowed them to set up businesses and benefit from hard work. And Flom’s rejection from establishment law firms forced him into new legal practice areas such as corporate takeovers.

The four lawyers who formed Wachtell, Lipton, Rosen, & Katz had the same backgrounds as Flom. The lawyers appreciated how adversity helped them.

One of the name partners at Wachtell said that the fact that he couldn’t get a job at a fancy law firm coming out of NYU was the best thing that ever happened to him, even though it didn’t seem so at the time. And Joe Flom said the same thing, what seemed to be a denial of a great opportunity was actually their break and made their success possible.

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Re: How Wachtell operates?

Post by Anonymous User » Mon Aug 29, 2022 11:20 am

Askhanar wrote:
Sun Aug 28, 2022 11:58 am
Hi there,

I'm curious to understand how Wachtell became the #1 law firm in NY and what made them remain so.
  • What they are doing right?

    How do they operate (business model)?
    What's unique in them?
    What do lawyers do differently at Wachtell compared to other law firms?
    How do they reach out and retain clients?
    Other things that you could add about them?
To my awareness, I remember reading that Martin Lipton's father was preparing him to be an Investment Banker but he was more interested in law. So I assume that when he started the firm he implemented an IB culture which can be felt even nowadays (especially based on their areas of expertise).

If anyone could give an extensive response to those questions I would appreciate it.
I can't answer all of these questions, as I haven't worked there, but I've been across from them as an M&A associate.

What makes them special/unique vs. every other firm is their unique billing practices. You've probably heard that they "take a percentage of the deal" similar to bankers. From what I've heard, I believe they bill their hours, and if the deal doesn't go through, they get paid for the hours worked like any other firm. If the deal goes through, they get a set "percentage" of the deal that is greater than they would have earned from billable fees. I'm sure this is more complicated and there's all kinds of caps/limits etc.

No other firm really does this - for 2 reasons:

1. Practically not all firms can pull this off. Wachtell is more of a boutique than it is a biglaw firm. They are small and choose the matters they want to work on. They just have more market power than a true biglaw firm that will mostly take in whatever comes the door and are competing with other firms for volume of work. Wachtell has the reputation and the size/nimbleness to go out and say "we're Wachtell, we're very busy, if you want the best, here's how much it's gonna cost".

2. Many firms disagree with their billing practices on a fundamental, values level (or so they claim at least). The argument goes, when your compensation is dependent upon closing a deal, there are perverse incentives to close that deal above all else. This is why bankers are often the biggest pushers of signing M&A transactions - they don't get paid for their work until closing. As lawyers, our job is to mitigate risks and protect our clients which may mean advising our clients to fight for things that may delay or risk closing. The fear is that if our comp is tied to closing the deal, our incentives may not always align with giving clients sound legal counsel or at least there would exist a perception of such.

What do their lawyers do differently? As far as I can tell, nothing really. They are extremely leanly staffed and their junior lawyers are given a ton of responsibility early on. In my opinion/experience, a few excel in that environment and many more flounder/struggle.

However, because of their unique billing structure, it actually works out even if their first-year associate is struggling as the only associate on the deal because they're happy to push the majority of the work on other firms. They get paid well if the deal closes, not if they rack up the hours. On the flip side, I'm sure they tell themselves it's okay to push work on the other firm because we're getting paid by the hour and it allows us to rack up the bill (which is sorta fair). So this weird, symbiotic relationship works.

I caveat all this by saying that my experience is limited to PE M&A. Their true bread and butter is public M&A, so I'm sure my perception is colored by the fact that I've probably never worked on a deal that they really really cared about.

otisreadingcomp

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Re: How Wachtell operates?

Post by otisreadingcomp » Mon Aug 29, 2022 1:02 pm

To add to this, it's my understanding that because they focus on sell-side M&A and don't have much else, firms do not mind recommending them when a firm is conflicted out. If you recommend Wachtell, you don't have to worry about them taking capital markets business, for example. Also, the company they are selling disappears, so it won't be as much of a repeat player.

This is what I've learned from this forum, so it may not be entirely accurate, but intuitively it makes sense to me.

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Re: How Wachtell operates?

Post by Anonymous User » Mon Aug 29, 2022 3:11 pm

The distaste with getting paid based on closing is silly because that's how all firms get paid.

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Anonymous User
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Re: How Wachtell operates?

Post by Anonymous User » Mon Aug 29, 2022 3:22 pm

Anonymous User wrote:
Mon Aug 29, 2022 3:11 pm
The distaste with getting paid based on closing is silly because that's how all firms get paid.
Isn't that the fee structure for basically the entire plaintiffs' bar? (contingency fee in which the attorney is paid by collecting a set percent of eventual recovery)

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Re: How Wachtell operates?

Post by Anonymous User » Mon Aug 29, 2022 3:47 pm

Bankers get paid based on % of price because this aligns their incentive. They want to get as high a price as possible so their fees are as high as possible. By the time lawyers start drafting agreements, the term sheet is largely agreed to and the deal is all about providing protection. Clients do not want to distort incentives by making lawyers incentivized to close the deal instead of providing them adequate protection. Instead, lawyers are incentivized to protect the client as well as possible since they are paid by the hour. Both compensation structures reflect the incentives and purposes of the two advisors.

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Re: How Wachtell operates?

Post by Anonymous User » Mon Aug 29, 2022 4:47 pm

Anonymous User wrote:
Mon Aug 29, 2022 3:22 pm
Anonymous User wrote:
Mon Aug 29, 2022 3:11 pm
The distaste with getting paid based on closing is silly because that's how all firms get paid.
Isn't that the fee structure for basically the entire plaintiffs' bar? (contingency fee in which the attorney is paid by collecting a set percent of eventual recovery)
I just meant that even when you get paid hourly, you still only get paid at closing.

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Re: How Wachtell operates?

Post by Anonymous User » Mon Aug 29, 2022 7:06 pm

Anonymous User wrote:
Mon Aug 29, 2022 11:20 am
What do their lawyers do differently? As far as I can tell, nothing really. They are extremely leanly staffed and their junior lawyers are given a ton of responsibility early on. In my opinion/experience, a few excel in that environment and many more flounder/struggle.

However, because of their unique billing structure, it actually works out even if their first-year associate is struggling as the only associate on the deal because they're happy to push the majority of the work on other firms. They get paid well if the deal closes, not if they rack up the hours. On the flip side, I'm sure they tell themselves it's okay to push work on the other firm because we're getting paid by the hour and it allows us to rack up the bill (which is sorta fair). So this weird, symbiotic relationship works.

I caveat all this by saying that my experience is limited to PE M&A. Their true bread and butter is public M&A, so I'm sure my perception is colored by the fact that I've probably never worked on a deal that they really really cared about.
WLRK associate. On this specific point -- the WLRK attitude is some combination of:

(a) WLRK juniors need to learn to run a deal starting the day they set foot in the firm
(b) if, to do so, things don't go 100% smoothly because the junior makes a mistake, that's OK, it's a learning process
(c) WLRK seniors and partners often don't, physically, have the time to micromanage the junior associate unless it's mission critical or things are truly dire

Net result being the most visible WLRK (or frankly, only non-partner) contact point is, on smaller deals, often a second year or third year. Occasional source of amusement/frustration for other side, but very good training.

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Cantabridgian

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Re: How Wachtell operates?

Post by Cantabridgian » Tue Nov 22, 2022 12:34 pm

How did Wachtell get paid in representing Twitter against Elon Musk? Did WLRK take a piece of the $44B action up front? Was its fee contingent? Surely it did not charge Twitter on a straight contingency; but was any portion of its fee contingent on Elon Musk buying Twitter for $54.20? And did the firm get credit for the purchase?

(I hope this question is consistent with the theme of this thread. I think the answer would shed some light on how the firm operates in "bet the company" litigation, an area for which it is not well known.)

SFSpartan

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Re: How Wachtell operates?

Post by SFSpartan » Wed Nov 23, 2022 12:57 pm

Cantabridgian wrote:
Tue Nov 22, 2022 12:34 pm
How did Wachtell get paid in representing Twitter against Elon Musk? Did WLRK take a piece of the $44B action up front? Was its fee contingent? Surely it did not charge Twitter on a straight contingency; but was any portion of its fee contingent on Elon Musk buying Twitter for $54.20? And did the firm get credit for the purchase?

(I hope this question is consistent with the theme of this thread. I think the answer would shed some light on how the firm operates in "bet the company" litigation, an area for which it is not well known.)
Nobody outside Wachtell is going to know this but would bet that on lit matters, WLRK is billing straight hours. Not sure how the "take a piece of the deal" model works in lit context and WLRK wasn't deal counsel on this one.

Cantabridgian

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Re: How Wachtell operates?

Post by Cantabridgian » Wed Nov 23, 2022 2:38 pm

SFSpartan wrote:
Wed Nov 23, 2022 12:57 pm
Cantabridgian wrote:
Tue Nov 22, 2022 12:34 pm
How did Wachtell get paid in representing Twitter against Elon Musk? Did WLRK take a piece of the $44B action up front? Was its fee contingent? Surely it did not charge Twitter on a straight contingency; but was any portion of its fee contingent on Elon Musk buying Twitter for $54.20? And did the firm get credit for the purchase?

(I hope this question is consistent with the theme of this thread. I think the answer would shed some light on how the firm operates in "bet the company" litigation, an area for which it is not well known.)
Nobody outside Wachtell is going to know this but would bet that on lit matters, WLRK is billing straight hours. Not sure how the "take a piece of the deal" model works in lit context and WLRK wasn't deal counsel on this one.
You're probably right now that Twitter is a private company, unless Wachtell has to apply to the Chancery Court for fees. But one way to "take a piece of the deal" is to look at the deal as involving $44 billion and taking a percent or two.

tlsguy2020

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Re: How Wachtell operates?

Post by tlsguy2020 » Wed Nov 23, 2022 5:32 pm

Cantabridgian wrote:
Wed Nov 23, 2022 2:38 pm
SFSpartan wrote:
Wed Nov 23, 2022 12:57 pm
Cantabridgian wrote:
Tue Nov 22, 2022 12:34 pm
How did Wachtell get paid in representing Twitter against Elon Musk? Did WLRK take a piece of the $44B action up front? Was its fee contingent? Surely it did not charge Twitter on a straight contingency; but was any portion of its fee contingent on Elon Musk buying Twitter for $54.20? And did the firm get credit for the purchase?

(I hope this question is consistent with the theme of this thread. I think the answer would shed some light on how the firm operates in "bet the company" litigation, an area for which it is not well known.)
Nobody outside Wachtell is going to know this but would bet that on lit matters, WLRK is billing straight hours. Not sure how the "take a piece of the deal" model works in lit context and WLRK wasn't deal counsel on this one.
You're probably right now that Twitter is a private company, unless Wachtell has to apply to the Chancery Court for fees. But one way to "take a piece of the deal" is to look at the deal as involving $44 billion and taking a percent or two.
Would be really difficult to get past ethics rules in the example above.

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Cantabridgian

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Re: How Wachtell operates?

Post by Cantabridgian » Wed Nov 23, 2022 6:07 pm

tlsguy2020 wrote:
Wed Nov 23, 2022 5:32 pm
Cantabridgian wrote:
Wed Nov 23, 2022 2:38 pm
SFSpartan wrote:
Wed Nov 23, 2022 12:57 pm
Cantabridgian wrote:
Tue Nov 22, 2022 12:34 pm
How did Wachtell get paid in representing Twitter against Elon Musk? Did WLRK take a piece of the $44B action up front? Was its fee contingent? Surely it did not charge Twitter on a straight contingency; but was any portion of its fee contingent on Elon Musk buying Twitter for $54.20? And did the firm get credit for the purchase?

(I hope this question is consistent with the theme of this thread. I think the answer would shed some light on how the firm operates in "bet the company" litigation, an area for which it is not well known.)
It's pretty much how Wachtell bills. And a $44 billion lawsuit imposes enormous responsibilities on the attorneys, especially plaintiffs' attorneys. So while the amount is stratospheric, I think Wachtell could justify it were a dissatisfied, sophisticated client to balk paying.
Nobody outside Wachtell is going to know this but would bet that on lit matters, WLRK is billing straight hours. Not sure how the "take a piece of the deal" model works in lit context and WLRK wasn't deal counsel on this one.
You're probably right now that Twitter is a private company, unless Wachtell has to apply to the Chancery Court for fees. But one way to "take a piece of the deal" is to look at the deal as involving $44 billion and taking a percent or two.
Would be really difficult to get past ethics rules in the example above.
It's pretty much how Wachtell bills. And a $44 billion lawsuit places enormous responsibility on the attorneys, especially plaintiffs' counsel. I suspect Wachtell could justify the stratospheric fee were the sophisticated, disgruntled client refusing to pay. (Ironically, the Delaware Chancellor, who presided over Twitter v. Musk, is now deciding whether to nullify Musk's $50 billion payment which helped to make him -- allegedly -- the world's wealthiest person in an earlier-filed lawsuit.)

tlsguy2020

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Re: How Wachtell operates?

Post by tlsguy2020 » Mon Nov 28, 2022 4:31 pm

Cantabridgian wrote:
Wed Nov 23, 2022 6:07 pm
tlsguy2020 wrote:
Wed Nov 23, 2022 5:32 pm
Cantabridgian wrote:
Wed Nov 23, 2022 2:38 pm
SFSpartan wrote:
Wed Nov 23, 2022 12:57 pm
Cantabridgian wrote:
Tue Nov 22, 2022 12:34 pm
How did Wachtell get paid in representing Twitter against Elon Musk? Did WLRK take a piece of the $44B action up front? Was its fee contingent? Surely it did not charge Twitter on a straight contingency; but was any portion of its fee contingent on Elon Musk buying Twitter for $54.20? And did the firm get credit for the purchase?

(I hope this question is consistent with the theme of this thread. I think the answer would shed some light on how the firm operates in "bet the company" litigation, an area for which it is not well known.)
It's pretty much how Wachtell bills. And a $44 billion lawsuit imposes enormous responsibilities on the attorneys, especially plaintiffs' attorneys. So while the amount is stratospheric, I think Wachtell could justify it were a dissatisfied, sophisticated client to balk paying.
Nobody outside Wachtell is going to know this but would bet that on lit matters, WLRK is billing straight hours. Not sure how the "take a piece of the deal" model works in lit context and WLRK wasn't deal counsel on this one.
You're probably right now that Twitter is a private company, unless Wachtell has to apply to the Chancery Court for fees. But one way to "take a piece of the deal" is to look at the deal as involving $44 billion and taking a percent or two.
Would be really difficult to get past ethics rules in the example above.
It's pretty much how Wachtell bills. And a $44 billion lawsuit places enormous responsibility on the attorneys, especially plaintiffs' counsel. I suspect Wachtell could justify the stratospheric fee were the sophisticated, disgruntled client refusing to pay. (Ironically, the Delaware Chancellor, who presided over Twitter v. Musk, is now deciding whether to nullify Musk's $50 billion payment which helped to make him -- allegedly -- the world's wealthiest person in an earlier-filed lawsuit.)
Oh I don't mean in terms of the exorbitant fees, I am certain Wachtell could (and does) charge up the wazoo in litigation fees. I just mean that the example above seems less to be like collecting a contingency fee in a damages award and more like taking a business interest in the underlying dispute. I could be wrong but that feels fairly murky.

Cantabridgian

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Re: How Wachtell operates?

Post by Cantabridgian » Mon Nov 28, 2022 8:54 pm

tlsguy2020 wrote:
Mon Nov 28, 2022 4:31 pm
Oh I don't mean in terms of the exorbitant fees, I am certain Wachtell could (and does) charge up the wazoo in litigation fees. I just mean that the example above seems less to be like collecting a contingency fee in a damages award and more like taking a business interest in the underlying dispute. I could be wrong but that feels fairly murky.
Wachtell takes a piece of the action in every M&A case in which it represents a party. So it has a "business interest" in the merger or acquisition. Likewise, lawyers who take contingency fees have an economic interest in the matters in which they take such fees (litigation or some other matter in which a result can be determined). Calling the interest a "business interest" doesn't change the dynamic.

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