Ambitions on an international scale
9 August 1998
Its merger talks with Richards Butler and Theodore Goddard - revealed in The Lawyer last week - are its second attempt to build a truly global law firm after it pulled out of the Cameron Mckenna deal in November 1996.
If the merger goes ahead it will create the UK's fifth largest firm, with a combined revenue of more than £160m and offices in 17 jurisdictions. It will also be Europe's leading media and entertainment practice.
But even if the complex deal is agreed by all the partners, the combined practice will have gaping holes in the profitable areas of corporate finance and banking.
So what is in it for the three firms?
Dentons managing partner Jonathan Tatten was widely credited as the architect of the tripartite talks between his firm, Cameron Markby Hewitt and McKenna & Co. But Dentons withdrew from those talks in November 1996, following objections by a minority on its executive board, led by James Dallas, now the firm's chairman.
In the following months Tatten, shaken by the setback, concentrated on bringing Denton International, the firm's alliance with five continental firms, closer together.
Last summer the number of alliance members rose to six when Dentons pulled on board both Norwegian firm de Beche & Co and Spanish firm Bufete Lupicinio Rodriguez, shortly after having lost Dutch member Houthoff. The other members are in France, Germany and Denmark.
Dentons also got agreement in principle from all the members to work to create a single identity, along the lines of Linklaters & Alliance.
Dentons has a long-established Hong Kong office and newer, smaller scale offices in Beijing, Singapore, Tokyo, Moscow, New York and Brussels. The firm's strengths in energy, projects and telecoms work require a bigger international network with credibility - a network the firm cannot afford on its own.
By the beginning of this year, Dentons was briefing staff that its strategy was to become a global firm by merging. Then two months ago, the possibility of a deal with Richards Butler came along.
Like Dentons, Richards Butler has an international network that needs increasing investment. The firm has a large and profitable Hong Kong office which operates as a separate profit centre.
Since Chris Schulten, the firm's quietly efficient former finance director, was made chief executive in October 1995 he has been building its international presence.
As well as a Paris and a Brussels office, the firm now has offices in Warsaw, Beijing, Piraeus and SAo Paolo (where an investment of £1m is believed to have been made).
In the Middle East it has added Oman and Islamabad to its existing Qatar and Abu Dhabi offices and is planning to open in Azerbaijan.
It has expanded from its traditional shipping core into related fields such as international trade and energy work, and has made a success of unrelated niche areas such as film finance.
But to expand further into emerging markets it needs greater resources. High average per-partner profits over the firm as a whole (£358,000 for the last year, according to The Lawyer top 50) are skewed by the successful Hong Kong practice - the London office is only as profitable as Dentons' and Theodore Goddard's.
The logic, at least, of a tie-up between Dentons and Richards Butler is clear. But neither of the two firms has much clout in mergers and acquisitions work - a key revenue stream and source of prestige for any firm with global aspirations.
That is why Theodore Goddard, with its better-rated corporate practice, has been brought into the party.
Theodore Goddard has had its own troubles. It was hit hard by the early 1990s recession. It set up an alliance with US firm Dewey Ballantine in 1991, giving it joint venture offices in Warsaw, Budapest and Prague. But the alliance collapsed in 1996, with Deweys expanding into English law and taking complete control of the foreign offices.
The number of equity partners shrunk from 38 in 1996/97 to 31 in 1997/98. But profits have improved on the back of the M&A boom.
The firm's approachable and youthful managing partner, Peter Kavanagh, who was elected in April last year, will have seen the benefits of winning back an international presence by merging with Dentons and Richards Butler.
So can the three leaders pull off a deal? More importantly, can they convince their respective partners.
The talks are only one-month old and the negotiating deals are still assessing the viability of the project. A massive amount of detailed due diligence has still to be done before the plan can be put to partners.
A headquarters for the new firm is a major issue. The three firms are inconveniently scattered across the City. IT costs may be huge, although each firm will have been forced to upgrade their systems to deal with the Year 2000 problem.
If the management of each firm can overcome these problems they will then have to persuade their partners.
"I've got an open mind, but I'll believe it when I see it - the logistics of it all are mind boggling," says a rank and file partner in one of the firms.
One thing is sure, this time it will not be Dentons that breaks the deal. After the Cameron McKenna fiasco Tatten is unlikely to accept objections from his board again and will appeal directly to the entire partnership if necessary. An 85 per cent majority would be required to vote it through - an achievable target.
One potential sticking point could be Richards Butler's profitable Hong Kong partnership, which could take some persuading to merge itself with the rest of the partnership, although the Asian crisis may have focused minds.
If the three parties can pull it off, the strengths of the new firm they will create are clear. Its media and entertainment practice would be second to none, with all three firms strong in areas such as film finance.
It would have strength in depth in energy, telecoms, IT, infrastructure, shipping and international trade.
Its international network would be potentially formidable and the merged firm would be better placed to invest further in emerging markets.
Dentons' projects team is fourth by deal value among firms carrying out projects in Asia, according to Privatisation International's latest annual survey. There would be great potential for expansion if it could be linked to Richards Butler's Hong Kong office.
But the firm's biggest weakness would be the lack of a credible practice in the key, lucrative areas of corporate finance and banking.
The task in hand is shown by Corporate Money's table of UK mergers and acquisitions over the past eight months. Between them the three firms managed 26 deals worth £776m - a similar number of deals but lower in value than those handled by Rowe & Maw, Berwin Leighton, Nabarro Nathanson, Cameron McKenna and Simmons & Simmons.
Establishing a strong banking practice and attracting the right talent is very difficult now the big five City firms and the US practices can snap up the banking high fliers.
A further merger to give the firm a bigger reputation in banking and finance would seem essential.
Nevertheless, the combined firm, if successfully consolidated, would have a greater international presence than the likes of Cameron McKenna and Simmons & Simmons, and would be well placed to bring off a merger with a US firm.
A firm with a strong international trade practice - like White & Case or Morgan Lewis & Bockius - may well be a suitable partner.
But that is getting well ahead of the game. The ambitious Tatten may well be dreaming of such a move, but first he has got to lay the ghost of Cameron McKenna to rest and this time bring a tripartite merger to completion.