With a more-is-better philosophy, national practices increasingly want to lock arms with foreign law firms in mergers to create a global presence.
If only it were that simple.
Whether troubles arise from differences in management styles or pay structures, recruitment practices or even dress codes, transcontinental mergers can have super-sized portions of the problems found in domestic mergers.
“You’re trying to merge two cultures, and it’s crucial that the cultures mesh,” said Paul Reinstein, co-managing partner of New York-based Fried, Frank, Harris, Shriver & Jacobson. His firm attempted to merge with London-based Ashurst last year, but the deal collapsed due to what the firms said were “too many uncertainties” in trying to create a single entity.
In the last two years, several of the most recognized firms in the country have merged with foreign practices, and still more are either in talks to join forces with foreign firms or have tried to do so.
In hindsight, Reinstein points to the double trouble Fried Frank faced in its potential merger. On the one hand, the deal involved a proposed merger of two like-sized firms. Immediately, Reinstein said, the problem of “who’s in charge” emerged. In addition, differences in work culture and laws also presented difficulties.
Fried Frank has since expanded its London practice to 29, including last month’s hiring of six attorneys from Ashurst. Reinstein remains reflective about last year’s merger experience.
“It was very worthwhile to have at least tried to see if we could do such a transaction,” he said.
International mergers seem to be the inevitable consequence of expansion. First, firms want a bi-coastal presence. Then, they seek offices in key mid-America cities. And finally, law firms will merge to spread their reach across oceans.
Kirkpatrick & Lockhart has followed such a strategy. In 1993, the Pittsburgh-based firm opened a New York office, which now has about 90 attorneys. A few years later, it set up shop on the West Coast, with offices in Los Angeles and San Francisco. Dallas followed, and now London. Last month, 750-attorney Kirkpatrick & Lockhart announced its merger with Nicholson Graham & Jones, a London firm with 135 lawyers.
The creation of Kirkpatrick & Lockhart Nicholson Graham came after “sufficient patience” in attempting to penetrate the London market, said Peter Kalis, managing partner of the firm. Establishing a national platform was critical before looking overseas, Kalis explained. Even then, the firm took a slow and methodical approach, despite a sense of urgency he felt from competitors eyeing the London market.
“You look around and wonder, ‘Won’t someone ask me to the prom?'” He added, however, that deals that move too fast without the essentials in place are doomed.
“When you’ve got the right merger partner, there’s no problem that’s insurmountable. When you’ve got the wrong partner, every little molehill becomes Mount Everest,” he said.
Recent history shows more firms positioning themselves for a global practice. In January 2002, Chicago-based Mayer Brown & Platt merged with London’s Rowe & Maw to create a 1,200-lawyer firm. That deal followed an unsuccessful merger attempt between the London firm and White & Case. Last year, Jones Day completed its merger with London’s Gouldens, which established a 200-lawyer London office for Jones Day. Also last year, Fried Frank broke off talks with Ashurst. Besides the Kirkpatrick & Lockhart transaction this year, Piper Rudnick has announced that it is negotiating with London-based DLA for a possible merger, while simultaneously working on a merger with West Coast firm Gray Cary Ware & Freidenrich. The combined firm would employ more than 3,100 attorneys.
A LOGICAL TREND
The movement beyond U.S. borders is a logical step, considering law firm consolidation at home. This year alone marks a notable trend in mergers. Washington’s Wilmer, Cutler & Pickering merged with Boston-based Hale and Dorr to form a firm with more than 1,000 attorneys. Orrick Herrington & Sutcliffe, with about 675 lawyers, is in talks with 239-attorney Swidler Berlin Shereff Friedman, based in Washington.
Boston-based Ropes & Gray reportedly is negotiating with Fish & Neave in New York. Also recently, New York-based Coudert Brothers broke off plans with Squire, Sanders & Dempsey, which has a significant foreign presence.
While these stateside mergers have their own sets of challenges, international mergers can be trickier for a number of reasons, said Joel Henning, vice president and general counsel of Hildebrandt International, a consultancy that advises law firms on mergers. Some of the hurdles include differing rules on conflicts of interests, marketing styles, recruitment and pay differentials.
But it is the first and most basic question that often trips up U.S. firms seeking an international merger, Henning said. They need to take a hard look at whether a merger with an overseas firm makes good business sense, he explained. In other words, does the U.S. firm have sufficient clientele to support a substantial overseas presence, or is it banking on a strategy of “if you build it, they will come.” If the latter is the case, the expansion likely is based on flawed logic.
“Frankly, a whole lot of mergers don’t make sense,” he said.