Hogan Lovells co-CEO David Harris on why the firm’s lack of growth three years into the Lovells and Hogan & Hartson merger is no terrible thing.
While partners at Hogan & Harston and Lovells were popping corks before the ink had dried on the Hogan Lovells merger agreement in 2010, a 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.
The legal community on both sides of the Atlantic was quick to endorse the merger, billed by both firms’ management as a marriage of equals. Lovells had 28 international offices, Hogan 27. Lovells had 1,180 lawyers, of whom 360 were partners, Hogan 700 and 510 respectively. For Hogan, Lovells offered the Holy Grail of London. For Lovells, Hogan had 13 US offices, with crucial presences on the West as well as the East Coast.
Yet the positive way the merger was received was less about the perfect union and more about the fact that it was not a rescue deal for either party. It was a courtship that didn’t simply look good on paper, but was destined to work in practice too.
But fast-forward three years and financial growth at Hogan Lovells has been underwhelming. With 2010 regarded as year zero for the post-merger firm, Harris has positively spun the static results in 2011 and slip in revenues in 2012 as signs of the firm’s resilience.
Given the double pressures of difficult market conditions and the disruption and cost of post-merger integration, his point – no move is good news, given the circumstances – is a fair one. Harris said he was pleased that revenue and average profit per equity partner (PEP) was maintained in 2011, when the firm posted effectively flat revenues with turnover reaching $1.665bn compared with $1.664bn in 2010.
“To have maintained revenue and increased PEP is a good result,” he said back in 2011. “Our geographic and practice diversity has helped us, in the current market, play to our strengths.”
However in 2012 turnover dropped 1.9 per cent, from $1.665bn to $1.633bn. PEP and revenue per lawyer also fell during the year, the former by 5.8 per cent to $1.097m, the latter by 3 per cent to $716, 000. Surely a firm three years into a merger should start seeing its turnover move up, even just a little?
“It’s the exchange rate that accounts for the dollar reduction,” said Harris when the figures were reported in March (1 March 2013), pointing out that several years ago turnover at legacy Lovells had benefited from exchange rate fluctuations.
Profits for the year also took a battering by the costs associated with the closure of the firm’s office in Abu Dhabi (26 September 2012), a base which was originally legacy Hogan & Hartson’s.
“There’s significant downward pressure on fees, which isn’t likely to go away,” Harris admits, adding that the firm is looking at ways it can be more innovative in its fee arrangements.
He certainly doesn’t seem surprised by the results, returning to the point of resilience in a tough market and the advantages the merger has placed Hogan Lovells in the global legal services market.
”We have a strong balance to our global practice, with 45 per cent of our revenue being derived from the US and 48 per cent from Europe, equally divided between London and Continental Europe. We look at leveraging that strength as much as possible,” says Harris. ”That means that just under 10 per cent of total revenue comes from Asia and the Middle East, which is significant although our intention is to grow it given the strategic importance of the region. We are also developing our practice in Latin America.”
Looking ahead, the focus for the firm is cross-selling – the tie-up has allowed the firm to cross-sell relationships and also win places on several panels that would not have been possible pre-merger, including China Development Bank, Societe Generale, Deutsche Bank and Vodafone.
“A lot of work in London is cross-border,” he adds. “The central focus going forward is on cross-selling. Everyone talks about it but doing it well in practice takes longer and is more difficult.
“We’re seeing the benefits of our global reach, particularly with clients seeking to reduce their number of advisers around the world and concentrating their work on a smaller number. Our scale also enables us to benefit from the increasing interaction between markets, such as between China and Latin America.”