Is joint venture a new way of saying US alliance?
8 May 1997
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6 August 2013
Simmons & Simmons says it has found a new way to get US law capability - form a limited joint venture with a US firm.
Mention the word "alliance" rather than "merger" and apply it to US and UK law firms, and managing partners shake their heads wisely before pooh-poohing the idea.
"History is littered with failed alliances," commented Freshfields managing partner Ian Terry. "It's a difficult thing to make work properly."
At first glance, Simmons & Simmons' move to tie up with New York firm Fried Frank Harris Shriver & Jacobson and run a joint London unit looks like a throwback to the frenzied days of the early 1990s when there seemed to be no City firm outside the magic circle without a US ally.
Theodore Goddard had an alliance with Dewey Ballantine while Macfarlanes had a non-exclusive referral arrangement with O'Melveny & Myers. Ashurst Morris Crisp signed up with Sidley & Austin to a joint venture Tokyo office; Lawrence Graham tied up with New York firm Rosenman & Colin; and in 1990 Nabarro Nathanson linked arms with Weil Gotshal & Manges. Paisner & Co allied with McDermott Will & Emery. All of these deals ended in failure within five years.
Dewey Ballantine broke from Theodore Goddard last year when it decided to build up its own UK capability. Why? Because, said a Deweys insider, the US firm was not getting enough work through Theodore Goddard to cover its investment.
Another rumoured problem with some of the joint venture offices was that the lawyers from the more profitable US firms were getting more money and resentment grew among English lawyers.
With Fried Franks profitability per partner estimated at £303,000 ($495,000) for 1996, compared with Simmons' £210,000, the pay differential issue could become compelling.
The third, and perhaps biggest, problem for these UK-US tie ups is getting clients to buy into the concept. Ashursts' joint Tokyo venture came to an ignominious end after less than three years because Japanese clients could not understand what it meant.
One Ashursts insider highlighted another problem, relevant to Simmons' new venture: "All our clients assumed we were doing a merger and our US referrals started to dry up."
Simmons is keen to retain referrals to other practice areas from US firms. It has a New York office, but this provides English law advice and does not focus on securities work.
Similarly, Fried Frank has a London office providing US law advice, generally not in the capital markets field, which is presumably anxious to maintain good relations with UK law firms that might refer work to it. The Lawyer has learnt that Fried Frank has been stressing to at least one other City competitor of Simmons that the tie-up is "limited in scope" to one practice area.
The head of Herbert Smith's company department, Richard Bond, commented: "We have worked with Fried Frank. If we had the choice between it and another New York firm, the tie-up might make us think twice."
Simmons has long wanted to build up its securities practice. Corporate partner Colin Leaver, who will manage the new unit, has been based in the firm's Hong Kong office for the past seven years and won a major client in Chinese state company Beijing Datang when he advised it on its dual listing in London and Hong Kong.
But when it comes to advising on US listings, Clifford Chance, Allen & Overy and Linklaters & Paines are already several lengths ahead of the pack, each having hired dozens of US securities lawyers over the past five years and having already acted as sole counsel on several 144A tranches (issues with a US tranche), while Freshfields began recruiting US securities lawyers this year.
International Financial Law Review ranked Simmons eighth as English adviser to Eurobond issuers this February, behind the top five and Herbert Smith and Cameron Markby Hewitt (now Cameron McKenna). It also came eighth as advisers to the arrangers of global and Euro Medium Term Note programmes behind Linklaters & Paines, Allen & Overy, Clifford Chance and several US firms.
Norton Rose managing partner Roger Birkby commented: "I think this is the first time anybody has approached this issue in that particular way." But he added: "We believe that we have got to bring the US capacity into Norton Rose...A joint venture is always going to be subject to the tensions of dual control and competition."
Doing US tranches of international offerings is the big target for every City firm worth its salt. It is the response to globalisation and to the US law firms which are moving in on international finance under English law.
Simmons has taken its existing rivals by surprise with this innovative deal. Whether it has stolen a march on them, only time, and the clients, will tell.