Lovells will axe lockstep to push through Hogan tie-up
US firm’s merit-based system hailed as selling point for merger.
David Harris
Lovells is secretly planning to abandon its lockstep in a bid to seal the proposed merger with Washington DC firm Hogan & Hartson.
The firms are gearing up to promote the merger to their partnerships later this year and it is understood that Lovells’ management will stress the fact that Hogan operates a purely merit-based system as a selling point of the deal.
The top 10 firm has long lagged behind its City counterparts in profitability, and with an average profit per equity partner (PEP) figure of £586,000 for 2008-09, remuneration of star performers is an issue.
Lovells has modified its lockstep in recent years so that partners do not gain a rung each year automatically. This allows management to freeze or reverse the positions of underperforming partners, although to date no provision has been made to reward exceptional performers.
A source at Lovells said the fact that the firm has already moved away from the traditional lockstep model will make it easier to integrate its remuneration system with Hogan’s.
“Because of the movements we’ve had on our lockstep it will be easier,” the source said. “This is an argument that will be used in favour of the merger.”
Although the firms are not totally aligned on profit (for the 2008 financial year Hogan’s figure stood at $1.17m (£730,000)), on revenue their financial results suggest a merger of equals. In 2008 Hogan turned over $922.5m, while Lovells’ figure was £531m.
Insiders at the firm suggested that talks had not advanced to the point of identifying where the combined entity, which is likely to be called Hogan Lovells, would be headquartered.
However, management on both sides are understood to favour full financial integration, although the exact details of how this would work in practice are still being thrashed out.
A source said: “The concept is that we will make it as much a single firm as is possible under regulations.”
Hogan’s merger negotiation team, which is made up of chairman Warren Gorrell and finance managing partner Prentiss Feagles, will attend Lovells’ annual partner conference in Lisbon at the end of November.
The Lovells merger negotiation team, which consists of managing partner David Harris, senior partner John Young and litigation chief Patrick Sherrington, will then attend a meeting of Hogan’s partners.
If both partnerships back the merger it is understood that the firms plan to complete the deal before the end of Lovells’ financial year in April 2010.
Lovells and Hogan declined to comment.
Readers' comments (7)
Anonymous | 12-Oct-2009 5:17 pm
What no one has mentioned is that Warren Gorrell is one of the most difficult, divisive, and egotistical people in law firm management anywhere. He has transformed Hogan but made it a miserable place -- and heaven forbid if you are not one of his golden boys. Lovells partners should think carefully if they really want to jump in bed with this Machiavelli
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Rhubarb & Custard | 13-Oct-2009 10:04 am
Hogan's management may be like the Borgias, but that's not the point. The issue is that the Lovells/Hogan tie up would be something special. Despite comments on the earlier story that it's just two 'OK' firms merging, that's really not seeing this for what it is. To say Lovells is average just means they're not an MC firm, OK, so what? They're still one of the top 20 firms in Europe by reputation and revenue. Hogan has 27 offices worldwide and a huge list of US clients with cross border needs - its revenues and stature are not too shabby either - (and, alright, they're not Wachtell - but who would expect them to be?). The end result of this will be a massive firm with huge potential - perhaps the first true global firm as it will be fully integrated into a single partnership, unlike giants like DLA Piper that still runs two partnerships, and different to the MC who have made a tiny impact in the US. I think a lot of the disparaging comments are comming from people that don't want this to work.
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Anonymous | 13-Oct-2009 4:54 pm
"Hogan Lovells"?! But they would be missing a great opportunity to name the new entity "LoveHarts"...
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Former Clifford Chance Parter | 13-Oct-2009 8:45 pm
Seriously, doesn't anyone ever learn? 10 years ago, CC and Rogers & Wells merged with great fanfare. Look at the results 10 years out: with two exceptions, every single rainmaking partner in the Americas has left; the Americas have shrunk by over 400 lawyers from the immediate post-merger period, CC - NY is a non-entity in all but primarily European deals (despite what the formerly fat (now just fatuous) Brian Hoffman told The Lawyer), CC cannot even allege full service capabilities without a litigation practice, and the economic contribution of the US to the firm is still non-existent. Proceed with caution, boys and girls. Misery lies ahead.
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Anonymous | 14-Oct-2009 1:34 am
I've suggested "Harlots" to a partner at Lovells. Don't know whether he liked it.
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Anonymous | 15-Oct-2009 9:03 am
A little birdy tells me that a number of key Lovells partners may not hang round for any tie-up and are already talking.....
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Dirt | 19-Oct-2009 3:30 pm
Former CC partner seems to be missing the whole point of the article. CC lost the top R&W partners by forcing onto the lockstep. Lovells is clearly not going to make the same mistake, effectively allowing itself to be taken over to win over its best-performing partners. Problem is, what will its less well-performing partners - of which there are a hell of a lot - make of this?
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