Hear us roar
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13 February 2014
No wonder these men are happy. They’ve just pulled off an extraordinary deal. Catrin Griffiths and Julia Cahill on the inside story of the Rowe & Maw talks with Mayer Brown
It was all because of Marconi general counsel Jeff Gordon. He had known Rowe & Maw's Paul Maher for a while, originally through building products company Marley, a mutual client when Gordon was a partner at the London office of Mayer Brown & Platt. The two men continued to work together when Gordon, by this time at Marconi, began instructing Maher for corporate work. But by the time the two men enjoyed lunch together in the Orangery last spring, Gordon had something else on his mind. Knowing that his old firm was keen to kick-start its European practice, Gordon suggested in passing to Maher that the two firms should hook up.
Nearly a year later, Gordon's tentative suggestion has been dramatically realised. On Friday 25 January, Rowe & Maw and Mayer Brown & Platt partners voted in favour of merger. That night, Rowe & Maw partners celebrated until the small hours of Saturday morning, toasting their future as part of one of the biggest law firms in the world.
And there was a fair amount for Rowe & Maw partners to celebrate. They have pulled off an extraordinarily good deal. Not only does the firm get three voting partners - Maher, Sean Connolly and senior partner Stuart James - on the powerful 13-strong management board dubbed the 'policy and planning committee', but it has also wangled real estate head Jeremy Clay a participating seat.
What is more, the deal has contractual protections on London's autonomy. London retains all of its 30-odd fixed share partners, thereby foisting the concept wholesale on to Mayer Brown's essentially all-equity partnership. (Local quirks worldwide have meant that there are only four salaried partners at Mayer Brown's overseas offices, out of a total of 324 total partners.)
|Gordon: "The merger gives Rowe & Maw a chance to get nearer to the magic circle. But that requires a lot of execution, and that's never a sure thing"|
On top of this, Maher - the man who nearly left for Clifford Chance back in 1998, but who was bought back by his firm on a promise that things would change - now gets a key fiefdom. Along with New York partner Mark Wojciechowski, Maher will co-chair the firm's international committee. It means that he will run the new firm's European operations in their entirety.
Even better for Rowe & Maw partners, they join the Mayer Brown entity substantially better off. With average profits per partner of $725,000 (£512,000) compared with Rowe & Maw's £400,000, Mayer Brown is paying a premium for its new European presence. Maher himself will see a hike in pay from £730,000 to around $1.1m (£777,000).
It looks like a great deal, but there is a nagging question: can it stay that way? Can Rowe & Maw partners really sustain their identity within what is now the tenth-largest law firm in the world?
It's the day after the announcement, and Mayer Brown chairman Tyrone ('Ty') Fahner is sitting with Rowe & Maw partners Maher, Connolly and James. You can tell the partners are still faintly euphoric. That, combined with the effect of sleepless nights, too much caffeine and ill-concealed curiosity as to how the outside world is reacting to the deal, has created in the room an atmosphere that is positively skittish. Fahner, who eschews Rowe & Maw coffee in favour of a gigantic brew from Starbucks, is protesting that he is suffering from a bad cold, but is nevertheless buoyant. "This is the biggest thing we've ever done," he exclaims.
All four seem aware that they are, to a large extent, pioneers. After all, the only other mid-sized UK law firm to have undertaken a US merger is Titmuss Sainer with Dechert Price & Rhoads; the entity was swiftly and tellingly renamed Dechert.
Because there was so little precedent, the Rowe & Maw team inevitably examined the biggest transatlantic merger of all as guidance. "We used Clifford Chance and Rogers & Wells as a road map," says litigation partner Connolly. Yet it is the example of Rowe & Maw that most UK law firms will be looking to when they assess their own transatlantic prospects.
|Maher: 'If you get any group of people who look in the same direction you can go anywhere. What holds organisations back is that it's more fun to fight internally than to fight an enemy'|
Current wisdom has it that the only transatlantic merger that can work is essentially asymmetrical. Steptoe & Johnson dwarfed Rakisons, as did Reed Smith with Warner Cranston. With Rowe & Maw, the scale is different. It may be a a sixth of the size of its new US partner, but with a turnover of £55.6m, it is not easily digestible.
At an exploratory meeting at the Savoy back in the spring of last year, the Rowe & Maw team made it very clear to Fahner and his London managing partner Ian Coles that being subsumed into Mayer Brown was out of the question. The Rowe & Maw partnership did not want to relinquish its identity.
"Being taken over was always a fear, and was one of the points we had to deal with internally," reflects property partner Gary Bownes. Luckily, Fahner and Coles were not looking at the deal in terms of an acquisition. "I don't want employees, I want partners," says Fahner with some vehemence.
Mayer Brown wanted a deal badly. It had been after a credible UK presence for a while; the firm had been in London for years, but its City office had never made much of a mark. "We needed critical mass for the firm and the office," admits Coles.
Ironically, Rowe & Maw's signal failure to expand internationally worked in its favour in getting the deal. "We weren't burdened with the baggage of overseas offices," laughs corporate partner Peter Dickinson ruefully.
The Rowe & Maw partners felt keenly their lack of international presence. So much so, the management team had already secured the premise within the partnership that a US merger was not only inevitable, but desirable.
"Some corporate partners would say, 'Why don't we become a Macfarlanes?'," says Maher, arguing that a purely domestic strategy would have taken the firm down a cul de sac. "There was a big group of people who wanted to achieve the platform of the quick and the right merger."
Mayer Brown & Platt
Rowe & Maw
That ambition was evident to the firm's clients as well. "[A US] merger is a natural progression for a very competent and probably quite aggressive firm," says Chris Petty, assistant general counsel at AstraZeneca.
The very fact that the Rowe & Maw partners were unanimous in the final vote was in itself remarkable. It was certainly a dramatic shift in attitudes. Some five years previously, the firm had taken internal soundings on what sort of merger partner would be acceptable. Only one partner - intellectual property (IP) head Stephen Gare - voted in favour of talking to a US firm. The unanimous vote was also highly symbolic of the way in which the firm - which four years ago had been a highly disparate collection of people and practices - had entirely transformed itself into a cohesive unit.
So, against this background, delivering the Rowe & Maw side would turn out to be the easy part. Maher and co astutely sent three corporate partners, three litigation partners and the head of IP - all opinion-formers within the partnership - to meet Mayer Brown early on. "We needed a cross-section of people in to see whether we'd got the mood right," says Maher. Karen Abbott, a litigation partner, was one of the delegation. "I went to Chicago with an open mind," she says, "and returned convinced that it could work. It was obvious there were exciting opportunities across all practice areas."
Throughout the negotiations, Maher, Connolly and Clay were adamant that certain aspects of Rowe & Maw's business could not be junked. These included the name of the firm, fixed share partners and operational autonomy on questions such as billing targets and hourly rates.
The other classic transatlantic deal breaker of accounting standards was not an issue; unusually for a US firm, Mayer Brown is run on an accruals basis. According to Dickinson, this was a huge relief. "Some consultants tried to sell us their wares last year, and a major part of delivery was that we'd get completely destroyed by cash accounting," he says.
The issue of fixed share partners was hard fought. Mayer Brown has - almost - an all-equity partnership, while Rowe & Maw has 30 fixed share partners out of 78. Those fine meritocratic gradations of hierarchy are part of the very identity of the partnership. Indeed, they are part of the revolution which took place at Rowe & Maw several years earlier, when it dropped its rigid lockstep to bring on the younger partners. Maher, Connolly and Clay won out on this issue: the combined firm will retain the Rowe & Maw fixed share partners on the same status.
Meanwhile, the name of the new entity inevitably assumed symbolic importance. "They're changing their name in the States [to include ours]," argues Bownes. "The name is what we are - it's our brand. It's a very big step for them to take."
Still, one rather suspects that the canny Rowe & Maw management team sold this approach to their partners more in hope. After all, it is a fair bet that the 'Rowe & Maw' will be dropped soon enough when spoken aloud, just like 'Bruckhaus Deringer' is dropped in favour of the simpler 'Freshfields'.
London's operational autonomy, underpinned by contractual provisions, was key to the whole deal. On one level, it was another deft sleight of hand by the Rowe & Maw team, because those provisions are not so very different from the way that Mayer Brown customarily operates its other worldwide offices. But as a safeguard, it went a long way to convince the London partners of Chicago's good faith.
Mayer Brown's City office will be subsumed into Rowe & Maw immediately. The combined firm will therefore have to deal with the potentially tricky issue of standardising assistant pay in the London office, since Mayer Brown pays US rates. Fahner sidesteps the issue. "We pay our associates in New York more than in Chicago and Charlotte," he says. "You can price yourselves out of markets when you say one size fits all."
The Chicago reaction
The Mayer Brown part of the deal was less simple to deliver. Fahner, a man of some easy authority (one Rowe & Maw partner jokes that they can always imagine Hail to the Chief whenever Fahner presents), had given his own side a bigger task than strictly necessary. A simple majority of 51 per cent was all it should have taken, according to the partnership agreement. However, Fahner says that, for a decision of such importance, getting more firm buy-in was key. "I said that if we don't get two-thirds, then the deal isn't on," he says.
Nursing his empty Starbucks cup, Fahner sounds comfortable enough in the aftermath of the vote, but the result, at 73 per cent, was not far over the minimum required. It seems that 27 per cent of Mayer Brown partners were not convinced by Fahner's honeyed advocacy.
"A lot of people have practices which are less international, such as litigation," reasons Fahner. "[Any] resistance, or lack of understanding, came from the non-finance or non-corporate partners, or from people making a lot of money who were over 50 and who were more risk-averse." (Maher adds in a stage whisper: "We're getting a list of those names.")
The final result - which was videoconferenced on that Friday night - lent a pleasing, if tense, narrative climax to nine months of negotiations.
It's clear that Maher, Connolly, Clay and James have been able to negotiate a good deal. It helped that the chemistry between them all is strong; few law firm management teams get on with each other in the way that these men obviously do. Maher is clearly the leader, but there is a sense of shared purpose and trust, leavened with copious mick-taking.
As White & Case partner Maurice Allen - who had been keen to do a deal with Rowe & Maw - remarks: "There's a group of partners there who are very likeminded, not scared of taking risks and who all buy into the plan."
But can they build out the practice in the way they want? It's impossible to answer that question with any certainty, but they have a strong track record in leadership. "We'd done an awful lot of rationalisation," notes Dickinson.
That is putting it mildly. It is an oft-told story, but it bears repeating: Maher, along with close colleagues Dickinson and corporate partner Andrew Copley, were nearly lured to Clifford Chance. Their dissatisfaction with Rowe & Maw stemmed largely from the way in which the corporate function was organised ("There were two corporate departments - like North Korea and South Korea," deadpans Maher) and the apparent lack of strategy.
After a long debate, the firm gave Maher his head and entirely reorganised the equity into the bargain, with current senior partner James being instrumental in bringing about the concessions. Maher himself was accelerated up to the top of the lockstep and given a fixed bonus in perpetuity (equivalent to another 100 points) and - most importantly - a huge mandate to make things happen.
Says Dickinson of that time: "Why I stuck with Rowe & Maw rather than going to Clifford Chance? It would be very difficult to make a difference there and influence change. We thought that once the strategy was bought into, staying behind was a very exciting opportunity."
Let's go to work
Opportunity, challenge call it what you will. But with the Mayer Brown deal now completed, the hard work is about to begin. Preoccupying the management team will be how to leverage off the combined entity. There are clearly clients in common, Marconi being an obvious example. Bank of America is another, although in very different ways. Mayer Brown handles finance work for the bank, while Rowe & Maw's biggest connection is through co-litigation head David Allen's defence of the bank on a long-running BCCI action.
There is no doubt that Mayer Brown's finance capability is what excites many Rowe & Maw partners. "We're now a global player with resources that we didn't have before - for example, Mayer Brown has a top securitisation practice and our securitisation experience is quite limited," says property partner Iain Thomas.
"To people like Nationwide that's of interest, because that's increasingly going to be the field that they're playing in. And the European representation will enable us to deliver to people who need that capability. Nationwide has used Dechert on that side of things because Dechert has a European presence. We now have a European presence, so we can compete [with Dechert] on the same terms as we do in London. That is all incredibly exciting."
So what is Mayer Brown really getting out of the deal? Rowe & Maw does not make the same showing in the deals tables as Hammond Suddards Edge or CMS Cameron McKenna. Essentially, what Mayer Brown is paying for are the relationships with listed companies, such as AstraZeneca, Reuters, Cable & Wireless, EMI and Unilever.
Competing with the big boys
But any notion from Rowe & Maw that it can compete immediately with the magic circle now that it is part of the tenth-largest law firm in the world would be misplaced.
Much of Rowe & Maw's success in the last few years has been predicated on establishing close relationships with major companies as a nimble secondary adviser on their smaller to medium-sized deals.
"We've valued the service we get from Rowe & Maw," says Keith Goulborn, head of property at Unilever. "They're commercial, they respond very quickly to our requests and they add value to our operation."
Marconi's Jeff Gordon ponders on the merger. "They're clearly in a better position, but the question is, how much better?" he says. "It doesn't on day one make them Freshfields in London. It gives them a chance to get them nearer to the magic circle. But that requires a lot of execution, and that's never a sure thing."
Another client says: "We view it very positively. As a medium-sized firm, Rowe & Maw clearly needed an international perspective. That seems in line with the market and it's very much aligned with our business."
So will a push for US-style profitability undermine Rowe & Maw's hard-won relationships with its clients? The fact that the firm has hitherto made such a virtue of its lower charging rates - an ethos which a former partner calls "a satisfied client for a fair profit, as opposed to a satisfied client for a large profit" - may give it less room for manoeuvre than it might like. Indeed, one in-house lawyer confides that any pressure from Chicago to charge more would be unacceptable from the firm's point of view.
Yet another client comments: "I wonder whether this new arrangement will enable them to continue to give the service they do. The work I instruct them on tends to be thick files, thin fees; complex matters, but low value. We didn't choose Rowe & Maw because they could offer us a global business. We're not interested.
"We want a damn good, well-resourced UK practice, which is what they've given us. Not everybody can be in the highest league. We saw Rowe & Maw as a jolly good second tier player. You don't need a Slaughter and May or a Herbert Smith to do a load of day-to-day work."
As things stand, Rowe & Maw needs the Continental network to play in the cross-border market (ironically, this was something White & Case could have offered), but there is a lot to do in Europe. One household name client is non-committal on the deal, saying: "It hasn't got the European angle we would have hoped for."
There is, at least, a platform. Mayer Brown's acquisition of Lambert & Lee was a good start in the French market. The German operation, which the US firm set up a year ago by taking over Gaedertz's Frankfurt office, is directed primarily at smaller Mittelstand clients, although the arrival of former Clifford Chance Pünder acquisition finance star Manfred Heemann is a major boost to the firm's potential.
Maher, Clay and Connolly have had the balls to streamline and shape up the London operation, but they have never had to manage a mass lateral hiring programme; the challenge will now be rather different.
But the esprit de corps is strong. "If you get any group of people who look in the same direction you can go anywhere," says Maher. "What holds organisations back is that it's more fun to fight internally than it is to fight an enemy."
Another partner, who knows the Rowe & Maw team, adds: "All of those guys get along well. If you get four, five, six people who really get along with each other and have a common ambition, you can really achieve a lot."
Ambition? They've hardly even started.
|Show me the money|
The basic Rowe & Maw lockstep (for there is an infinite variety within the profit shareout) runs over 10 years from 100-200 points. Within that, there are various bonus awards, and a partner can be moved up and down and be accelerated. To make it even more complex, there are 400 'phantom' points at the top of that lockstep which can be distributed as bonuses among those equity partners. After this, a partner can move up into the so-called 'super shares' stage. Approximately 15 per cent of equity partners inhabit this happy sphere, where points go up to 400, although in practice, the highest on the ladder is Maher on 350 points.