Dentons prepares to seal transatlantic merger with Sonnenschein
Denton Wilde Sapte is to merge with US firm Sonnenschein Nath & Rosenthal in a deal that will create a £500m firm with 1,400 lawyers.
Howard Morris
Partners at the respective firms were informed of the proposal this afternoon and will be asked to vote on the matter on 9 June. If successful the firms will join forces in September under the brand SNR Denton.
In an exclusive interview with The Lawyer Dentons CEO Howard Morris said that shared values, growth in size and geographical spread were key drivers for the merger.
“We feel very strongly that we have the same values,” he commented. “The size of the new firm will be striking, but that’s not the sole purpose. We know that there’s work that we can’t do because we’re constrained by our current spread.”
He added: “In our strategic review we’ve said that we want to be the leading firm in our sectors and geographies. A further goal is to be part of a global firm. This is a step in the right direction.”
The combination would gift Dentons a presence in the US and extend Sonnenschein’s international reach, which is currently limited to small offices in Brussels and Zurich. Dentons’ network includes presences in the Middle East and the CIS.
Click here for a video of the management of both firms discussing the rationale behind the merger.
The firms also point to synergies in the banking, energy, insurance, healthcare, hotels, life sciences and government practices.
The news comes after several months of speculation over possible merger targets for Dentons. Morris denied that the combination between the $473m (£328m) turnover Sonnenschein and £168m Dentons would in reality be a bolt-on by the US firm.
We’re both quite unhappy with our relative profitability compared with our peers. This isn’t about solving that - it’s about top line growth.
“If you look at the name they’re giving [it up] and becoming SNR Denton,” he argued. “London would be the largest office, with 400 lawyers [compared with] 200 lawyers in New York City.”
In 2008 Sonnenschein chairman Elliot Portnoy told The Lawyer that he wanted the firm to re-enter the UK market through the acquisition of a local firm (7 July 2008). However, he has since emphasised that this new proposal would not be an acquisition but a “merger of equals”.
“Many of the assumptions we made [in 2008] about the best way for Sonnenschein and its clients to be well served were not entirely accurate. We concluded that the only way to meet aspirations was to be part of a transformative combination and that is what we’ve found in Dentons,” he said.
Despite Dentons announcing average profit per equity partner (PEP) growth for the 2009-10 financial year of 22 per cent - taking the total to £360,000 - the firm expects this to be lower than that of many of its peers (19 May 2010). With a PEP of $780,000 (£540,000) for 2009 Sonnenschein has also been criticised for what is seen as historically sluggish profitability.
Morris acknowledged this as a problem and said that both firms were keen to improve their profits, but added that this was not in itself the driver for the merger.
“We’re both quite unhappy with our relative profitability compared with our peers,” he said. “This isn’t about solving that - it’s about top line growth. Earning more revenue and getting a bigger share of our clients’ spending is going to be the answer to our profitability issues.”
Like transatlantic firms DLA Piper and Hogan Lovells, SNR Denton would operate under a Swiss Verein structure. Morris and Portnoy would become joint CEOs, while Dentons partner and chairman Martin Kitchen and Sonnenschein business and regulation chair Joe Andrew would become joint chairmen of the merged firm.
Many of the assumptions we made [in 2008] about the best way for Sonnenschein and its clients to be well served were not entirely accurate.
They would preside over a joint board of directors made up of Dentons deputy chairman Rory McAlpine, Sonnenschein real estate head Jana Cohen Barbe and litigation head Michael Barr. They will be supported by a global advisory committee, which will deal with strategic thinking. This will be made up of the eight current members of Dentons’ board plus Middle East head Neil Cuthbert and the 16 current members of Sonnenschein’s policy and planning committee.
As part of the convergence both firms would alter their partnership structure and remuneration. Dentons would abolish its modified lockstep and junior partners would begin contributing capital, while Sonnenschein, which currently has three classes of partner (capital, income and special) will move to a single class of full-equity partners and shift to an annual remuneration cycle.
“The philosophy is very much that we want to manage it as one firm to harmonise as much [as possible, while] reflecting the differences on both sides of the Atlantic,” explained Kitchen.
Figures:
Denton Wilde Sapte (2009-10)
Revenue: £168m
PEP: £360,000
Total staff: 1,303
Total partners: 175
Total lawyers: 573
Sonnenschein Nath & Rosenthal (2009)
Revenue: $473m (£328m)
PEP: $780,000 (£540,000)
Total staff: 1,434
Total partners: 357
Total lawyers: 672
Readers' comments (18)
Dave Harris | 26-May-2010 4:15 pm
Dentons could have held out for better, IMO. Perhaps Howard Morris wanted a merger where he could be in the driving seat?
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Hamish | 26-May-2010 4:42 pm
Re-Dave Harris
They could have held out but Morris needed to take action, they had been coasting for too long.
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Anonymous | 26-May-2010 6:24 pm
Is it not ironic that DWS have found a merger partner before SJ Berwin?
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Uncle Pelican | 26-May-2010 10:41 pm
The noise that the newly created firm will hope to make on the world stage will surely be somewhat muted by a zero presence in that engine of global growth - Asia-Pacific - especially given the mega energy deals going on there recently. Would the new firm perhaps seek a third alliance in the region to give itself truly global capability?
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Quentin N Woodley | 27-May-2010 7:45 am
SNR Denton sounds like a toothpaste
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Anonymous | 27-May-2010 8:33 am
Having trained with DWS, I have a great deal of respect for the place. I just can't see what the merger really has to offer.
There appears to be very little synergy between the practice groups and their metrics are very different.
SNR is a top drawer insurance litigator, but DWS (when I was a trainee) had only one partner practicing this discipline in London.
Both firms market a focus on IPMT, but as most people at DWS would tell you, IPMT contributes a very small % of turnover.
DWS strengths in London are mid-market finance (save for the excellent Wynne, Felberbaum, Andrews, Paine and Rice), real estate and a clutch of energy/project lawyers in London, Paris and Dubai. Frankly I can't see how SNR's St Louis and Walnut Creek offices really advance these practice areas.
When Dentons and Wilde Sapte merged, a lot of top partners left because the costs were going to cripple them. I hope the same doesn't happen again.
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Anonymous | 27-May-2010 11:04 am
@ Dave Harris wrote Dentons could have held out for better, IMO. Perhaps Howard Morris wanted a merger where he could be in the driving seat?
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Denton's are merging with a firm with a PEP more than twice as high, a far higher RPL and around twice as big in total revenues.
This is actually a wonderful merger for Dentons.
Strategically is also great, creating a firm with a sizeable footprint in both Europe and the U.S. and the resources to expand in both and also look towards Asia.
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Wilde Sapte | 27-May-2010 11:25 am
@Anonymous 8.33am, I think you may have gotten the wrong end of the stick. It's not about the practice fits but what you do with them. If their strategy is to target the Middle East and Asia then a larger platform makes sense. In any event, there is a good practice fit on the energy side.
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Anonymous | 27-May-2010 11:57 am
We might presume that they will have an eye to move into the Asian market in the near future.
That aside, the merger is strategically sound on both sides of the Atlantic and an especially good move by Dentons.
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Anonymous | 27-May-2010 12:13 pm
they should name it Denton Sonnenschein
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Dave Cameron | 27-May-2010 12:50 pm
That video is HILARIOUS!!!!!! Do you think they did it all in one take? It's amazing the way they read each other's minds, answering questions without any questions being asked.
It's definitely worth watching right to the end for Howard Morris's "I'm so excited by this merger" finale. I'd hate to see him bored by something......
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Joe C | 27-May-2010 4:45 pm
Please do not foget that SNR New York is the former high powered New York finance practice of Thacher Profit and Wood, which is a natural fit to the DWS London office. The TPW team has only recently joined so there is a lot of growth for that. SNR is as much a NY firm as it is a Chicago firm. Along with the DWS growth markets this will make a powerful combination in the long term. Give it a couple of years I think these guys are going to be heard.
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Nick reynolds | 27-May-2010 5:14 pm
A comment on the video....OUCH it is painful to watch
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Anonymous | 27-May-2010 6:02 pm
Looks like a smart move to me. This bumps them a few rungs up the ladder
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Anonymous | 27-May-2010 8:06 pm
Yes, I agree Denton Sonnenschein sounds much better!
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David Ufuoma Omamogho | 27-May-2010 8:44 pm
The important thing is that both firms are in agreement in fulfilling a mutual and common vision that will profit the merger as a whole;
That i believe is the recipe for their continued and creative growth in line with current trends
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Anon | 27-May-2010 10:18 pm
Sensible move.
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Qasim11876 | 29-May-2010 3:25 pm
We might presume that they will have an eye to move into the Asian market in the near future.
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