Sidleys and Brown & Wood set for merger
26 February 2001
Chicago-based Sidley & Austin and New York's Brown & Wood are planning a merger that will make them the third largest firm in the US.
The combination of the firms' London operations will also create a formidable capital markets practice.
With nearly 100 lawyers in the City, Sidley Austin Brown & Wood, as it will be known, will be one of the biggest London offices of a US firm as well as one of the most specialist. Focused on finance, it will be one of the top practices for securitisation and repackaging work, should the two firms vote in favour of the move in April.
The link-up talks, which have only been going on since January, have already gained management approval, and now practice groups and international offices will talk to each other in the final stage of the process.
Management, partner compensation and accounting issues have already been ironed out. Brown & Wood will adopt Sidleys' management style. Sidleys has an executive committee and a management committee, with the executive capable of making all decisions on behalf of the firm. Brown & Wood has only a management committee, with all decisions going to a firm-wide vote.
There will be a combination of the two different modified lockstep systems and an adoption of Sidleys' accrual accounting methods, whereby revenue figures include work in progress rather than just work paid for. Brown & Wood had managed all its accounting on a cash basis, only recognising income once it was received.
That issue was one of the main stumbling blocks two years ago when Brown & Wood talked to White & Case about a merger. Those talks ended in 1999 when the firms failed to agree on accounting methods.
For 1999, Brown & Wood and Sidleys had diverse profits per partner, according to US legal journal The American Lawyer. Brown & Wood partners took home an average of $800,000 (£554,000), while at Sidleys the figure was $575,000 (£399,000).
Brown & Wood managing partner Tom Smith says: "1999 was an unbelievable year for us and we had a solid 2000, but the compensation wasn't all that different between us for 2000."
He adds that the two firms expect to vote on the merger in mid-April so that the deal can become effective on 1 May this year. He says that in 2000 the combined revenue of the two firms hit around $650m (£450m).
In terms of manpower, only Skadden Arps Slate Meagher & Flom and Jones Day Reavis & Pogue will be larger. "This is such a natural fit," says Smith. "We do what they wanted, which is New York capital markets, and they're what we wanted, a more diverse platform with corporate capability."
The two firms share a raft of investment banking clients. Brown & Wood's biggest is Merrill Lynch, which Sidleys also advises on a regular basis, including through its London office.
Clifford Chance securitisation partner Kevin Ingram says that the combination would produce a significant player in the field. "I'd think they'd be a serious competitor in the UK market as a combined securitisation force," he says.
Jacky Kelly, securitisation partner in the London office of New York's Weil Gotshal & Manges, says: "This move will probably make them one of the biggest teams in London, but the jury's still out on whether they can compete with the likes of Clifford Chance, Allen & Overy and Freshfields [Bruckhaus Deringer]."
One partner at a rival magic circle firm says the link-up would make the merged practice a more attractive proposition for existing investment banking clients in the US, which might now instruct them in London.
Sidleys' corporate and litigation practice boasts clients that include General Electric Company and AT&T Corporation.
Sidleys London managing partner Drew Scott says: "We're already one of the bigger of the US firms in London, but obviously this pushes us up the league tables.
"The way we look at it in London is that it's a great opportunity to put our structured finance practice together with their capital markets practice in London. It also gives us a much bigger New York office with whom we can work."
Brown & Wood also has international offices in Beijing, China and Hong Kong, while Sidleys' practice extends into Hong Kong, Shanghai, Singapore and Tokyo.