Like it or lump it, if there is one thing the British are famous for it is their penchant for a celebratory drink. So it was fitting that, before the ink had dried on the Hogan Lovells merger agreement, partners from the respective firms were meeting up to toast their own health over a mojito or two.
“The first thing that happened [after the vote went through] was that within a few hours we were invited to Lovells’ office for cocktails,” recalls Garry Pegg, managing partner of Hogan & Hartson’s London office and soon to be a corporate partner at Hogan Lovells. “Everyone was pretty knackered, but there was a great sense of achievement. Pulling this together is a fantastically complicated thing.”
Given that the vote went through just 10 days before Christmas, the goodwill gestures did not stop there, with staff from Hogan’s London office joining Lovells’ annual carol concert in London’s St Bride’s Church and countless small-scale shindigs taking place around the world.
“There’s been a huge enthusiasm for people to meet their opposite numbers in practices and offices,” says Lovells senior partner John Young, who will co-chair Hogan Lovells alongside Hogan Washington DC partner Claudette Christian.
The good vibes surrounding the deal can in large part be put down to the positive way the merger has been received and the fervent press coverage it has generated.
“We had our debate on the merger at our partner conference in Lisbon in November, and I have to say that the general mood was incredibly good,” says Young. “I think that was assisted by the fact that the public consensus on the merger proposal has been positive to a remarkably unified degree.”
Pegg agrees. “When we got all this fantastic press from the potential merger with Lovells, it felt great,” he says.
Billed by both firms’ management as a merger of equals, the deal appears to be exactly that, so it is hardly surprising that the legal communities on both sides of the Atlantic were quick to endorse it. Lovells has 28 international offices, Hogan has 27. Lovells has 1,180 lawyers, of whom 360 are partners, and Hogan has 700 and 510 respectively.
In the last financial year for which figures are available for (2008 for Hogan, 2008-09 for Lovells) the US firm turned over $922.5m (£572.05m), while Lovells’ turnover stood at £531m. Profits were aligned less perfectly, with Lovells’ average profit per equity partner (PEP) figure of £586,000 contrasting with Hogan’s $1.17m (£730,000).
Management at both firms are at pains to highlight how well the two firms complement each other and how strong their combined practice coverage will be.
In a joint statement released on the day that the partnerships okayed the deal, Lovells managing partner David Harris, who will serve as joint CEO of the new firm alongside Hogan chairman Warren Gorrell, said the merged entity presented a ”compelling proposition”.
“It’ll provide clients with access to considerable industry knowledge and resource in key sectors, including energy, financial services, telecommunications, media and technology, life sciences and pharmaceutical, consumer goods, real estate, natural resources and infrastructure,” Harris said in the statement.
Gorrell concurred. “Each firm will preserve its shared cultural and core values – collegiality, teamwork and worldwide leadership in community service,” he added.
Yet it is less the perfection of the union that has impressed the market and more the fact that it is clearly not a rescue deal for either party.
While Hogan and Lovells were busy popping corks in their pre-Christmas love-in, the normally cynical market looked on approvingly, viewing the deal as a sign that the pernicious conditions of the past two years could finally be ending.
Certainly it provides Lovells and Hogan with something that would have seemed all but impossible to attain during, and even after, a recession: strength in markets where their presences are currently weak.
For Lovells that means massive US coverage. As the box shows, Hogan has 13 US offices, with crucial presences on the West as well as the East Coast.
For Hogan, Lovells offers the Holy Grail of London.
“For a long time we’d been really trying to break beyond 70 or 80 lawyers in London and it became very difficult to recruit,” says Pegg. “To get to the size you want in the timescale you want is really difficult; you have to throw a lot of resources at it.
“We could be twice our size in London, but we didn’t want to just add numbers. We saw a lot of people, but just couldn’t get the right people. In London we’d never get to where we wanted to be by hiring ones and twos.”
Although Hogan has had a London office since 1992, in the early days it was largely a service office for the Kingdom Hotel Group and its founder, Saudi Arabia’s Prince Alwaleed Bin Talal Bin AbdulAziz Alsaud.
When in 2001 Hogan merged with New York firm Squadron Ellenoff Plesent & Sheinfeld it decided to turn its attentions to London with the aim of creating a full-service City base. At that time, which is when Pegg joined from Dewey & LeBoeuf legacy firm LeBoeuf Lamb Greene & MacRae, the office had just six people. Now it has 100, 70 of whom are lawyers and 20 are partners.
Just how Hogan’s London office will be integrated with Lovells’ is still a matter for debate, as is how the firms will go about combining operations in the 11 cities where they both have a presence.
“Between now and May we have to make sure we do all that’s necessary to hit the deck running as a combined organisation,” says Young. “Where there are overlap offices we have to make sure that practice groups are sitting together in the same office, but no decision has been taken on any offices yet. There’ll be local discussions as to what the best solution is.”
Office integration, although crucial for the new firm’s all-important culture, is not as important as financial integration, and it is in this respect that Hogan Lovells is drawing minor criticisms for ‘doing a DLA’.
As of 1 May Lovells’ US operations will move onto Hogan’s US LLP, which will be rebranded with the combined firm’s name. Elsewhere Hogan will move on to Lovells’ LLP and Hogan Lovells will operate as separate US and international entities. This means retaining calendar year reporting for the US side of the business and UK fiscal year reporting for the international side. And that will make assessing the combined firm’s financial performance tricky.
“The firms will retain existing financial years, but there’ll be a mechanism to make sure that in profit-sharing we make the necessary adjustments,” says Young. “It’s inevitably complicated.
“At the moment the structure is that there’s a US LLP and a European LLP, and we’ll continue with a structure that links the two.”
Although the firm is considering adopting a Swiss Verein structure, there is no firm plan to have this in place at the time the merger goes live.
“We’re looking into whether it may facilitate the merger further, but it’s not essential,” says Young.
New year, new firm
Now that the party season is over, as a new year and decade dawns, partners in what will be Hogan Lovells now have four months to make their dream a reality. The eyes of the legal world are fixed on this merger, which so far is little more than a positive vote and a lot of goodwill.
As Pegg says: “There’s a lot to do now. It starts with the bigger picture stuff then we’ll drill down to the details.
“The critical thing is the execution of it, but people are determined to make it work.”
The courtship was plain sailing. What happens now will be the real test of the relationship.
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