Law firm mergers: a developing trend

UPDATE:
This feature is from 2011. Why not read our brand new feature Law firm mergers: why they happen instead?

Law firm mergers may seem of remote concern for prospective trainees, but they actually matter a lot. A merger can completely change a firm's culture, practice emphasis, geographic focus, strategy, business structure or compensation system.

In short, it can mean a firm changes beyond all recognition in a few short years. For example, trainees who applied to the Milton Keynes office of Midlands firm Howes Percival in 2006 found themselves starting at the MK office of major City firm Denton Wilde Sapte in 2008, and by 2010 they were working for global giant SNR Denton.

If you're after a training contract, it’s also important to keep abreast of a firm’s business strategy and plans for the future. A merger is a major event for any firm, so if you want to impress recruiters and know what you’ll be in for when joining, knowing about past and future mergers is vital.

Every merger happens under different circumstances. However, we've identified four key reasons why law firms merge, and why so many are merging at the moment.

 

Why merge?

1. Going global

Globalisation is increasingly driving law firm strategy. Many large firms are pursuing mergers with each other because they fear they will be left out of an emerging 'global elite' which have worldwide coverage – firms like like Cleary Gottlieb, Clifford Chance and Allen & Overy. Often these mergers involve a transatlantic partnership. “Law firms believe they have to have offices in faster growing regions like Asia and Latin America,” former Clifford Chance managing partner Tony Williams explained in the Financial Times, and “to build up an international presence from a standing start is too slow and too expensive.” Firms which have pursued this route include SNR Denton, Hogan Lovells and Squire Sanders Hammonds.

2. Tapping new markets

Firms often use mergers to move into new countries. For example Norton Rose recently opened in Australia, South Africa and Canada on the back of three mergers with local firms. Big American firms (including Mayer Brown, K&L Gates and Reed Smith) have moved into London by taking over established City firms. Tony Williams told the Financial Times: “Part of the reason why many US law firms are expanding is because... clients now see greater opportunities outside the US. A merger with a UK-based firm can help them achieve a greater scale and geographic coverage quickly and relatively cheaply.”

3. Practice expansion

Domestic mergers are often motivated by a need for practice area or geographic expansion. Take Brummie native Shakespeare Putsman’s merger-fed expansion across the Midlands.

4. The economy, stupid

The previous three reasons are all to do with expansion. This fourth one is about consolidation. The economic downturn has undoubtedly lead to an increase in law firm mergers. Faced by tougher markets, firms are attracted by the cost savings and cross-selling generated by a merger. No doubt this was part of the thinking between recent mergers of Barlow Lyde & Gilbert with Clyde & Co, Davies Arnold Cooper with Beachcroft, and Edwards Angell with Chicago's Wildman Harrold.

 

Circumstances 

Mergers happen in all kinds of different circumstances and formats. Sometimes mergers are between equals: firms with similar revenues, profits figures and global footprints (the Hogan-Lovells and SNR-Denton mergers are good examples). Sometimes there’s a clear dominant partner (as in the recent Edwards Angell-Wildman tie-up). Sometimes a merger is nothing more than a bail-out, with one firm saving another from going bust; Penningtons’ 2011 takeover of Lincoln’s Inn firm Dawsons is a good example. So if a firm’s in merger talks, that can mean it's hugely successful, on the brink of collapse or anything in between.

 

A growing trend

The Law Society Gazette predicts the trend for mergers will continue and even accelerate. According to its research, 83% of top 11-25 law firms think a merger is likely in the next two or three years. That’s up from 50% in 2009. No doubt this trend is due to continuing weak economy. With public sector cuts and fiscal belt-tightening in all sectors, firms are looking for long-term solutions to secure their place in the market – a merger offers obvious cost saving and cross-selling potentials.

There’s a lot more to say about the technicalities of how mergers work (or don’t). Here’s an interesting breakdown of the preparation that goes into a merger from a legal recruitment website and here’s an article in the Law Society Gazette about the pitfalls of making cross-selling work. Another management consultancy business portrays the problems of mergers in terms of the Seven Deadly Sins.

 

The vanguard

Some firms have been quicker off the block than others in embracing mergers. In the last 15 years a small group of firms – including Bingham McCutchen, DLA Piper and Baker & Mackenzie– have been trailblazers for building international networks based on mergers. DLA Piper is the result of mergers between at least five major firms (two English, two American and one Australian), while Baker Mac has used small strategic mergers to enter new markets. Both (organised as Swiss Vereins) have stolen a march on their competitors and have achieved near-total global coverage. Their strategy has had its detractors, but is increasingly becoming a model which many other firms are following.

 

Who’s next?

Not all firms have been seduced by the examples of DLA and Baker Mac though. Several tout their commitment to remaining “independent” and not merging. They include big players like Slaughter and May and smaller firms like London’s Travers Smith and Memery Crystal, and Nottingham’s Browne Jacobson.

Several firms are known to be actively seeking a merger, including Simmons & Simmons, SJ Berwin (both on the look-out for US partners) and Wragge & Co (looking to enter the London market). Firms likely to expand overseas through further mergers include Mayer Brown, Squire Sanders Hammonds, Norton Rose and DLA Piper. Reports in the legal press suggest a host of other firms – including Manches, Mills & Reeve, Hill Dickinson and Martineau – are not averse to the idea of a merger. Increased competition between (upper) mid-market firms means this is where most mergers are likely to happen.

 

Changes

So, if you hear even the whiff of a rumour that a firm you’re interested in might be merging – look into it. What type of firm is it merging with? Why is it merging? Under what circumstances is it merging? Is it a merger of equals? Is there a dominant partner? How different will the merged firm be? Will it affect the office you want to work in? If you keep your eyes peeled and ask yourself these question, it will help keep you well informed about the major challenges facing law firms.

 

In their own words: recent mergers 

 

1 May 2010: Hogan & Hartson + Lovells = Hogan Lovells

Andrew Gamble, London managing partner: “North America is by far the biggest legal market in the world. In order to catch a share in that market... we saw this merger as the best move. Doing it on your own is immensely difficult both in terms of investment and culture. From their side, [Hogan & Hartson] recognised that one of the effects of globalisation was that economic power was becoming more dissipated, and they needed to have a much more global offering. The firms were roughly the same in terms of size and profitability, so it would not be the case of one dominating the other.”

1 October 2010: Sonnenschein Nath & Rosenthal + Denton Wilde Sapte = SNR Denton

Jeremy Cape, London training partner: “We thought a US presence would open up doors for us and our clients. There is a benefit in having the wider geographical spread. There are some excellent link-ups, like Sonnenschein’s presence in DC with the World Bank, which can feed into our activity in Africa. Then there’s the opportunity to cross-sell clients. Sonnenschein, for example, is massive in the hotel sector, and while we do have some hotel deals, we don’t have the same type of client base. And there’s more critical mass: you can’t get around the fact that size is important to law firms. Before the combination we were about the 20th largest firm in the UK, and now we’ll be in the top 25 worldwide.”

1 January 2011: Squire Sanders & Dempsey + Hammonds = Squire Sanders Hammonds

James Maiwurm, chair and global CEO of Squire Sanders & Dempsey: “[The merger] appeals strongly to clients that want high-quality legal services from lawyers who have global experience and who understand and respect client demand for value. Squire Sanders is committed to being a global firm. We need a more complete presence in the UK and Western Europe.” [source: Squire Sanders & Dempsey’s website]

1 May 2011: Penningtons Solicitors + Dawsons = Penningtons Solicitors

David Raine, Penningtons chief executive: “We’ve used the dramatic downturn in the legal services market over the past two and a half years as an opportunity to enhance Penningtons’ position across all the key areas. It has always been our intention to supplement our growth through lateral hires with a more ambitious merger strategy.”

1 May 2011: Weightmans + Mace & Jones = Weightmans

Patrick Gaul, Weightmans managing partner: “Our merger with Mace & Jones will contribute significantly to the range of commercial services we offer to clients across the country. In total we have welcomed 160 new people to the firm, including an entire private client division.”

1 June 2011: Norton Rose + Ogilvy Renault + Deneys Reitz = Norton Rose Group

Peter Martyr, Norton Rose chief executive: “Like everybody else we were very keen to develop the Asia-Pacific platform. Having done that, if you stand in China or Asia and look at where they’re doing business it’s places like Canada and Africa.”

1 October 2011: Edwards Angell Palmer & Dodge + Wildman, Harrold, Allen & Dixon = Edwards Wildman Palmer

Walter Reed, Edwards Angell managing partner: “This is a transformative moment for both firms. In this competitive market, clients expect their preferred law firms to deliver a full range of legal services in a variety of geographies.”

1 November 2011: Davies Arnold Cooper + Beachcroft = DAC Beachcroft

Paul Murray, Beachcroft managing partner: “The combined firm will provide insurance clients with a distinctive, full-service offering in the UK and internationally. In addition, Beachcroft’s market-leading health practice will be well complemented by Davies Arnold Cooper’s strong presence in the life sciences sector.”

1 November 2011: Clyde & Co + Barlow Lyde & Gilbert = Clyde & Co

Peter Hasson, Clyde & Co CEO: “We have immense respect for the partners, lawyers and staff at Barlows, whose practices complement rather than duplicate those of Clydes.”

And the thinking of a firm that wants to remain independent... 

Tom Purton, Travers Smith head of graduate recruitment: “We’re flattered to have had lots of offers, but we don’t want to merge: we’ve always been an independent firm and that distinguishes us from the pack.”

*Note: all quotes except those for Hogan Lovells, SNR Denton and Travers Smith are taken from press releases or the legal press.

 

This feature originally appeared in our December 2011 newsletter.