K&L Gates chief blasts Norton Rose's 'Noah's ark' mergers
The chairman of US firm K&L Gates Peter Kalis has slammed yesterday’s three-way merger between Norton Rose, Canadian firm Ogilvy Renault and South Africa’s Deneys Reitz.
Peter Kalis
Kalis, whose firm topped $1bn in revenue last year following a succession of mergers, claimed the Norton Rose deal was closer to an “arrangement” and not a merger in the true sense.
“There has been a recent spate of ‘Noah’s Ark’ mergers: two CEOs, two partnerships, two profit pools, two accounting systems, two operations centres, all with a single flag flying above the Ark,” said Kalis. “Apparently Noah must now accommodate them coming aboard three by three. I wonder what clients think of this since few of them, with good reason, embrace Noah’s methodology in their own organisations and since all of them expect seamless integration among their global law firms.”
Kalis claimed the Norton Rose deal was the latest in a recent string of deals including those between Hogan & Hartson and Lovells,Sonnenschein Nath & Rosenthal and Denton Wilde Sapte and Squire Sanders & Dempsey and Hammonds, in which the firms did not fully share profits from day one and which were therefore not true mergers.
“A merger is when two become one, not when two become two,” added Kalis. “Language is important, and I’d suggest that the most effective language is that which aligns with the facts. [These are] simply ‘arrangements’.”
Yesterday’s deals, set to go live on 1 June 2011, will see Norton Rose’s enlarged group become a top 10 global practice by number of lawyers with combined revenues of more than $1bn (£660m) with 38 offices globally and more than 750 partners.
Norton Rose chief executive Peter Martyr dismissed Kalis’s comments, claiming the Swiss Verein-structured deal represented considerably more than an association or a joint venture.
“This is the only way you can really do it to get two businesses together with different equity structures, currency issues and different profitabilities,” said Martyr. “You could wait until there was parity but that wouldn’t allow you to reach your strategic goals. In this deal we’re really nailed together, we behave as one.”
Martyr added that the new additions to the Norton Rose group would have “common systems, management, name, strategy, resources and one CEO”.
“The only thing we’re not doing on day one is splitting the pre-existing profit pools,” added Martyr. “This comment displays either a lack of understanding of our deal or is a person with their head in the sand.”
Readers' comments (16)
Anonymous | 16-Nov-2010 3:00 pm
On this matter I defer to the Spice Girls' wisdom:
Candle light and soul forever
A dream of you and me together
Say you believe it, say you believe it
Say you believe it Kalis, say it....
Free your mind of doubt and danger
Be for real don't be a stranger
We can achieve it, we can achieve it
Say we can achieve it Kalis, say it.
Come a little bit closer baby, get it on, get it on
'Cause tonight is the night when two become one
Two become one Kalis, 2 become 1.
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Peter's Friend | 16-Nov-2010 3:08 pm
@Anonymous 3:00 pm
If anyone can show me a better blog on a legal website I'd like to see it. Much respect
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Stephen Stills | 16-Nov-2010 3:12 pm
I think anonymous has hit on a genuinely interesting parallel between the way firms approach mergers and people approach relationships...
Makes me wonder whether those shunned SJ Berwin partners are singing my little ditty at the moment:
Don’t be angry, don’t be sad, and don’t sit cryin’ over good times you’ve had.
There’s a girl right next to you, and she’s just waitin’ for something to do.
And there’s a rose in the fisted glove and the eagle flies with the dove,
and if you can’t be with the one you love, honey, love the one you’re with
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Hugey | 16-Nov-2010 3:22 pm
If it annoys so many tools it must be worth it.
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Anonymous | 16-Nov-2010 3:25 pm
Is this the same K&L Gates that has a separate LLP in the UK? Presumably with its own management and governance?
Or has this on its website: "K&L Gates is comprised of multiple affiliated entities: a limited liability partnership with the full name K&L Gates LLP qualified in Delaware and maintaining offices throughout the United States, in Berlin and Frankfurt, Germany, in Beijing (K&L Gates LLP Beijing Representative Office), in Dubai, U.A.E., in Shanghai (K&L Gates LLP Shanghai Representative Office), in Tokyo, and in Singapore; a limited liability partnership (also named K&L Gates LLP) incorporated in England and maintaining offices in London and Paris; a Taiwan general partnership (K&L Gates) maintaining an office in Taipei; a Hong Kong general partnership (K&L Gates, Solicitors) maintaining an office in Hong Kong; a Polish limited partnership (K&L Gates Jamka sp. k.) maintaining an office in Warsaw; and a Delaware limited liability company (K&L Gates Holdings, LLC) maintaining an office in Moscow."
Excellent.
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Anonymous | 16-Nov-2010 3:28 pm
Kalis: kettle, pot, black... Please re-arrange
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Dan | 16-Nov-2010 3:29 pm
Anonymous | 16-Nov-2010 3:00 pm
Brilliant.
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Mark Brandon | 16-Nov-2010 3:58 pm
Clients I have spoken to about existing vereins have often been dubious about the service they get, and I'm dubious about the verein as the best structure for international law firms. There is an old saying: if something seems too good to be true, it probably is...
The highly flexible nature of the verein means that law firms can do literally whatever they want with it; I suspect the limits of a verein will only be tested when the chips are down, and I wouldn't like to be the client caught in the crossfire at that point.
The fact remains that if you are a partner in one law firm office and your 'partner' in another office is not connected to you by either profitability or liability, you have little incentive put your own integrity on the line for him/her in the way you would with a full partner.
Kalis is right. The verein is convenient but it is more akin to a commercial arrangement such as franchising.
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Andrew | 16-Nov-2010 3:58 pm
Anonymous | 16-Nov-2010 3:00 pm
Cheered up my day.
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Perry | 16-Nov-2010 4:03 pm
Kallis's comments are illuminating only in so far as they reveal the level of panic that he is experiencing about the looming threat posed to K&L Gates by recent mergers (and forthcoming yet to be announced mergers).
Presumably Kallis thinks that PwC, KPMG, Deloitte and Ernst & Young are mere associations? And companies such as BHP Billiton, Unilever, Rio Tinto, and EADS?
This is leaving aside, as other posters have noted, the hypocricy of the comments since his own firm is not actually a single partnership.
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SimpleSimon | 16-Nov-2010 4:38 pm
Some of the above postings must be from people who simply don't appreciate or understand that all international law firms must operate in compliance with applicable local laws and bar regulations, as well as in a tax efficient manner. Of course KL Gates uses a number of different legal entities - AS DOES EVERY SINGLE OTHER INTERNATIONAL LAW FIRM.
As far as Kallis' comments are concerned, although I am not associated with any of the three firms, from where I am sitting this looks very positive for them, and I wish them well.
For firms with turnovers of less than £500m or so (including my own), you had better be the absolute market leader in what you do, or else accept that you will come under every greater marging squeezing competition. UK-mid-market firms.... you have not got much time. Get on with the mergers!
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Vercingetorix | 16-Nov-2010 7:15 pm
Simple Simon is right - even the Magic Circle have to use particular entities in certain jurisdictions. Linklaters in Sweden, CC in Italy etc.
The issue is whether partner share the same profit pool.
As I understand it K&L Gates only operates one profit pool so Kalis is no hypcorite.
And to those pointing to the accountancy firms - oh the irony! The fact is that the accounting firms are all ditching the verein model! Just look at how E&Y has merged its European firms into one. E&Y did this because the verein model is too tolerant of different service levels, cultures, quality etc.
Why should or would a partner in Calgary or Cape Town put himself out for a partner in London or Sydney when he doesnt share upside or downside with that other partner?
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Back on track | 17-Nov-2010 1:40 pm
@ Vercingetorix - 'Why should or would a partner in Calgary or Cape Town put himself out for a partner in London or Sydney when he doesnt share upside or downside with that other partner?'
For the same reason as any worker in any business, because if they don't they will be out of the door.
Re the Big Four accountancy firms, yes they are slowly merging their various national partnerships, but all of them still have over 50 each and it will take quite a while. I don't doubt that they will each eventually be single companies with stock listings.
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Barry Oyne | 17-Nov-2010 1:40 pm
Wood?
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John A. Marre | 17-Nov-2010 2:23 pm
Sounds to me like "The Lawyer" engaging in its usual Daily Mail type hyperbole. I'd wager that Kalis made this comment on an offhand basis in the course of some more general interview and certainly did not refer to "blasting" or "slamming" the NR step.
The decision not to share profits during the "getting to know each other better" phase sounds like a pretty good one to me -- the debacles encountered on the recent spate of scuttled mergers probably stemmed from the inability of the firms concerned to resolve the issue. In the meantme, NR gets a very good foothold in Africa and a place on the North American continent. Fair cop, I'd say.
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Anonymous | 23-Nov-2010 1:07 pm
For regulatory reasons, US LLP cannot be registered at the Paris Bar, only UK LLP are able to be registered. So most US law firms must keep their UK LLP to do so.
US LLP can be registered in Germany for example.
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