The Houston lift-off for Norton Rose Fulbright will create a huge firm on paper, but some worry about the effect on transatlantic referrals
2012 has seen merger talks fail over differences in culture and firm structures even if practice fits have seemed positive – Field Fisher Waterhouse and Osborne Clarke being a prime example. But the year’s most eye-catching tie-up – between Norton Rose and Houston’s Fulbright & Jaworski – has its own fair share of questions related to the effect of the deal on the UK firm’s chances of winning work in parts of its existing network.
We have a problem
The deal is done and set to go live on 1 June next year, but concerns are being raised about the effect of the merger on referral relationships with other US firms.
CEO Peter Martyr, who will take on the same role for the combined firm, Norton Rose Fulbright, has already refuted claims that the deal will jeopardise these ties, but admits relationships will change.
Relationships tend to be on a partner-specific basis; few other than Fulbright could claim to be best friends with Norton Rose, although certain names, such as Cravath Swaine & Moore, Sidley Austin, Simpson Thacher & Bartlett and Weil Gotshal & Manges, are frequently cited as firms with a record of sharing clients with the UK outfit. Other relationships are with local or specialist firms, and these are unlikely yet to be affected severely.
The Lawyer has learnt the names of certain City corporate partners who have long pushed for any US merger to be with a New York-based suitor, or at least one with a strong New York corporate and finance practice, to neutralise any drop in referrals with a beefy source of clients under the firm’s own banner. Regulatory is also expected to be affected, although Fulbright is strong in this area, with the combined firm set to launch a global regulatory and investigations practice.
On a separate note, take the example of London financial regulatory partner Jonathan Herbst, relationship partner for CME Group and a leading figure in the funds area alongside the likes of Travers Smith partner Margaret Chamberlain. Both receive much of their work as referrals from firms with elite private equity fund formation practices: Chamberlain, for example, from Clifford Chance; Herbst from Weil’s recently launched City funds team.
There is no suggestion that Herbst will suffer (Weil is understood to be open to referring matters to Norton Rose Fulbright), but it goes to show there are partners at Norton Rose who value their relationships with American firms highly.
The situation is perhaps more extreme in Canada, where Norton Rose’s business is said to be highly reliant on US referrals.
As one source close to the Canadian market comments: “It’s an issue for people in Canada because there’s a huge amount of cross-border work. It’ll be an issue for some London partners, but the percentage of work referred from the US to London will be a lot smaller than that referred from the US to Canada. The people who will be most affected in London will be the corporate finance guys.”
Martyr accepts that things will be different, but not all buy his argument that the US is more at home with the idea of co-operating with rivals than the UK.
“There will be a change in relationships,” he says. “We have to accept that in the States there’s less anxiety about retaining a relationship with what may be seen as strategic rivals. In [the UK], if you get instructed on something and another firm gets another bit of it there’s incredible tension. Our relationships are with specialists – I don’t think they’ll change.
“Of course the question of referrals was discussed with everybody and corporate, obviously, were heavily involved. No partners [across the firm] voted against.”
Of course no partners voted against the merger – who would have the courage? – but the big question is how many abstained and where across the network those abstentions occurred.
Martyr tends to give partners a few hours to read all documents on the spot at partner conferences before they decide whether to ratify a merger, so there was hardly time for individuals to carry out a cost-benefit analysis of the impact on their own clients and referrals. (One former partner even tells of Martyr the showman circulating a fake agenda before one of the retreats, only to brandish a whole new conference line-up – à la Paul Daniels – when they arrived, listing a vote on a -previously unmentioned Australian merger.)
Not everyone is wholly enamoured by this style, and not everyone will be wholly pleased with the effect of the merger on their practices. The Fulbright link-up is seen as a boost for the energy practice, but a questionable venture for the core corporate group. Sources indicate there are likely to be key departures in the wake of the merger.
“The concern within corporate finance was always the benefit of doing any merger in the US unless it’s got a good presence in New York,” says a former partner.
Another source in the US comments: “The culture in America is that you can [work together with rivals], but the bottom line is that it’s definitely going to affect people on both sides. You always do the cost-benefit analysis and say ‘these are where we get our referrals from’. It’s a done deal in actuality, but a lot of partners are unhappy – there are groups that may leave. They were getting a load of referrals [from] a whole bunch of firms. If it’s one or two small firms it doesn’t really matter, but if it’s a whole host of them…”
Another with close links to the firm adds: “There are mixed views. There are some partners who historically have had informal relationships with a whole bundle of other US firms in the States. [They say] are we going to get as much or more work? I’ve spoken with partners who fall both sides of these lines. As ever in any deal like this, there will be some fallout.”
Relationships are unlikely to change overnight – personal relationships are hard to budge – but over time there will no doubt be an attrition in the rate of referrals as new partners come along and firms rethink their links.
“I don’t think it will make a lot of difference – we’ve frequently referred work to firms such as Clifford Chance that would be regarded as having a separate US operation. I don’t think it would change our attitude,” counters a partner at a US firm’s London office.
Prospects, however, are not necessarily secure.
“There are probably other [US] firms out there that are a bit more concerned,” the partner adds.
Plenty to lose: a web of referral arrangements
Norton Rose partners’ specific referral relationships are largely informal and hard to put in facts and figures, but Thomson Reuters deal data showing the firm’s co-advisers on M&A since 1 January 2011 (see graphic below) gives an idea of how spread out these ties are. It worked on the same side as 64 firms during the period, including 24 US firms and 14 Canadian ones.
No single firm really stands out. In truth, no four or five do. Paul Weiss Rifkind Wharton & Garrison was on the same side of the table as Norton Rose on four deals, ahead of Skadden Arps Slate Meagher & Flom on three. Seven other American firms had co-counsel roles alongside the UK outfit on two deals, including Fulbright & Jaworski itself.
Its Canadian relationships are just as broadly scattered, if not more so, with five firms taking co-adviser roles three times, and four firms sharing the fees twice. It will be telling to revisit this data in a year or two and see whether the ties are still as widely strewn.
The data shows who was on which deals, not the background of who referred which work to whom, so it is not conclusive evidence of any real professional friendships. Neither does it include non-M&A work, so it excludes core areas for Norton Rose such as litigation, finance and projects. But it does fuel the argument of those who claim Norton Rose has plenty of US relationships to lose when the Fulbright merger goes live on 1 June 2013.