Focus: Pinsent Masons and Salans - Ever the twain?
28 February 2011
If Pinsents’ and Salans’ relationship was ever intended as a courtship leading to merger, the lack of mutual attraction now makes a wedding unlikely
Is the relationship between Pinsent Masons and Salans officially the legal world’s most underwhelming alliance? When it was established the tie-up looked to be a canny way of providing the UK-concentrated Pinsents with the next best thing to own-branded offices across CEE. For Salans it offered a wider UK platform. The reality, though, is a little different.
The number of practice areas and offices that are working together is limited; there have been no major CIS deals to date; and management at the respective firms have lamented the slow pace on joint initiatives such as training.
Furthermore, while around £2m of referral fees are estimated to have been generated since the launch of the agreement, they are mostly going in one direction.
“We’re not satisfied with what we’ve achieved so far, we have much bigger ambitions,” admits Salans global managing partner Dariusz Oleszczuk.
So 18 months in, what has the agreement done for the firms and will it help them achieve those ”bigger ambitions”?
A good rep
In terms of reputations in the CEE region, it is hard to beat Salans’. In the early 1990s the Paris-headquartered firm opened in the likes of Moscow, Warsaw, St Petersburg and Kiev faster than you could say perestroika. Today, with 10 offices across the region, the importance of CEE to the firm is attested to by the fact that it has elected a Pole to the position of global managing partner not once, but three times.
A senior source at a rival Warsaw-based firm speaks admiringly of Salans’ regional footprint.
“Salans is one of handful of firms that hasn’t been touched by the downturn,” he says. “It wasn’t overlawyered. Dariusz is well-regarded in Poland and the fact he’s heading up Salans is due to the strength of the firm’s CEE operations.”
At the same time the past three years or so have seen UK mid-market firms operating in Pinsents’ space recognise that if they want to be considered for the panels of major international clients, they need credible international offerings themselves.
Those that could not afford to take the DLA Piper- or Baker & McKenzie-style ’flags in maps’ approach have looked for cost-efficient alternatives.
UK-focused Nabarro has developed a Western European alliance of best friends; Addleshaw Goddard has been reassessing its overseas networks; and Olswang recently began opening its own offices in selected European capitals.
For its part, Pinsents realised that its Pinsent Masons Luther Group (PMLG) network, which is really a loose association of European firms, was not meeting its cross-border needs.
“PMLG was very patchy,” comments Pinsents senior partner Chris Mullen. “It was strong in Germany, but very weak in France and non-existent in several other markets. It was difficult to convince clients that it was a coherent network. [German member firm] Luther was very capable, but most of the others were frankly very small. We had difficulties brushing over the gaps. Salans was the next best thing to a one-stop shop.”
Given Pinsents’ reputation in the fields of projects, construction and infrastructure, areas that were deemed ripe for growth in CEE, it is not hard to see how an alliance with Salans seemed like a good step up from PMLG. At the same time, Pinsents has something that Salans lacks and has wanted for some time - a substantial capability in London and across the UK. Last year 80 per cent of Pinsents’ £200m turnover came from the UK.
So the firms agreed what is essentially a best friends relationship across mainland Europe and the UK. Organisationally and financially they remain separate, but the thinking was that, as well as referring work between offices, they would pitch jointly on certain deals, particularly in CEE.
However, the agreement has not panned out as expected.
“Due to the changing economic background and corruption, Russia’s less interesting to our clients [than initially anticipated],” reflects Mullen.
Similarly the downturn has seen fewer CEE clients looking to get advice from Pinsents in relation to capital markets activity in London, while in other practice areas it has been suggested that a deep ambivalence among groups of Salans partners towards the alliance itself has led to zero work being referred to Pinsents.
Mullen admits that the relationship is far from rosy across the board.
“We’ve learnt who’s supportive and cooperative and who’s less interested,” he admits.
He says that cooperation has instead focused on the mature markets of France and Germany.
The firm cites a number of recent examples, including the collaboration on chemical company Yule Catto & Co’s acquisition of PolymerLatex Deutschland and the £225m-related fundraising, where Salans provided German due diligence advice.
The flow of fees, however, is very much from Pinsents’ clients to Salans.
Jean-Louis Magnier, head of employment at Salans’ Paris office, attests to this fact. “We receive more work than we send,” he admits. “There are a lot of questions from clients - French employment law is very complex.”
Mullen and Oleszczuk estimate that, of around £2m of fees generated since the alliance’s launch, around £1.5m has been sent from Pinsents to Salans.
“We maybe had overexpectations as to the value of the business-flows both ways,” concedes Oleszczuk, before adding that the imbalance “should be put in perspective” and that “from the beginning it was obvious that, given the different geographies, the flow of work going from Pinsents to Salans would be greater”.
“Our European solution is primarily about defending our UK panel arrangements and not seeing clients go to competitors when we do work outside the UK,” Mullen insists. “I’ve said to the partners that this isn’t about revenue growth. We get stronger client relationships through joint bidding and a bit of work into the UK or Dubai.”
But Pinsents Middle East head Sachin Kerur says referrals from Salans, which is without a Gulf office, to his firm, which is well-established in the region, have been minimal.
“We haven’t felt the winds of change as a result [of the alliance],” he says. “But we probably wouldn’t have expected to do so. The relationship’s primarily focused on Europe.”
In East Asia Pinsents recently asserted an independent route from Salans by forming joint ventures with MPillay in Singapore (The Lawyer, 6 July 2010) and Beijing Hesen Law Firm in Beijing (TheLawyer.com, 9 February) alongside its own office - and that of Salans’ - in the Chinese capital.
Mullen defends the divergent paths that the firms have adopted globally. “Outside Europe our growth strategy isn’t around [the Salans relationship],” he insists. “For growth we’ve opened in Dubai and Beijing. These are the markets that are really growing fast.”
Que sera sera
It is understood from sources close to Pinsents’ management that a merger was initially discussed between the parties but was shelved because of the attendant cost and upheaval amid a recession. So notwithstanding the uneven record on collaboration globally, what is the likelihood that this could still happen?
The headline statistics for both firms are relatively aligned. In 2009-10 Pinsents turned over £206m, posted an average profit per equity partner (PEP) figure of £410,000, a revenue per partner (RPP) of £749,000 and 41 per cent of the partners were equity.
In 2009, the latest available figures for Salans, the firm turned over £184m, had a PEP of £559,000, an RPP of £1m and the exact same proportion of equity partners as at Pinsents at 41 per cent.
However, there are a number of potential stumbling blocks to a tie-up. While the recent wave of consolidation has tended to see UK practices merge with firms with sizeable presences in the major financial centres of the world, Salans’ office in the New York is tiny, with 13 partners and 37 lawyers in total (as of 1 November 2010), and services primarily French clients looking for US law advice. Its real hub is Paris, which is hardly a global financial centre.
Mullen downplays this factor. “We’re not in the institutional magic circle that needs to only be in the big financial centres for capital markets work,” he explains. “We’re into full-service coverage to provide panel solutions to the FTSE250”.
A more serious issue could be the much talked about antipathy from Salans’ Paris partners towards the whole arrangement. Former partners of the firm’s Paris office told The Lawyer that, although there was no formal partner vote, there was widespread opposition to the deal.
The fact that it went ahead in spite of this opposition was testimony to the support of a Pole, Oleszczuk, and of the then chair, London-based Stephen Finch.
While Oleszczuk remains in situ, the chairman position is now held by Francois Chateau, a Frenchman living in New York. Chateau did not respond to calls or emails in relation to this feature, but it is believed that, because his own power base rests with the Paris office, he is not encouraging of further integration.
Oleszczuk, however, strongly counters assertions either about the lack of commitment of the current chair or of the French office. “Every change [of management] involves a reconfirmation of priorities, but I don’t think it will impact upon our strategy with Pinsent Masons,” he stresses. “Relationships between organisations have a human dimension, but they’re ultimately driven by business considerations.
“The Paris office is the biggest beneficiary. For whatever reason the press presented this as a precursor to a merger and perhaps people felt scared about that.”
Despite Oleszczuk’s own commitment to the arrangement, Mullen points to structural obstacles that may be as difficult to overcome as any perceived cultural issues.
“Salans isn’t a very centrally managed organisation, so it isn’t [just] a question of the managing partner snapping his fingers,” he says. “We’d never say never [to a merger], but the technical challenges would be phenomenal - the US calendar year, the fact that they trade in different currencies to us and work in different time zones.”
That is not to mention the modified lockstep employed by Pinsents against Salans’ US-style ’eat what you kill’ remuneration system.
As Oleszczuk identifies, though, UK growth is a strategic priority for Salans. “We definitely need to be bigger in the UK,” he asserts. “Recruitment’s expensive and time-consuming. It would be much more reasonable to do this through a combination, but the time has to be right and the partner has to fit.”
He also suggests that Pinsents’ extensive string of offices across the UK regions could be a bonus rather than a hindrance.
“Only three years ago I’d have said [we’re] only [targeting] London,” he reveals. “Now national firms are making profit from sourcing work from cheaper locations [in the regions]. There are business advantages to this.”
Hope springs eternal
Neither party is under any contractual obligation to continue the arrangement and arguably the status quo is not such a bad thing.
It costs very little, Salans gets £1m-worth or so of referral fees and Pinsents gets a bit more in the way of global projection.
Management at both parties have expressed frustration at the slow rate of cooperation on areas such as training and knowhow, but convincing either firm to quicken the pace may be difficult.
Salans is too decentralised and pulling in too many directions to galvanise this. Pinsents, for its part, faces another issue.
Two weeks ago the firm moved into new headquarters at Liverpool Street. The investment in Crown Place will inevitably impact upon partner profitability, but it is part of the firm’s attempt to raise its City profile and shed its more inchoate image as an amalgamation of various regional practices.
How much patience, then, will Pinsents’ partners have for a tie-up that does not generate much in the way of referral fees and which, through a partnership with Salans, is aligning the firm to another hybrid brand?