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.”
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Readers' comments (16)
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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