US firms feel the urge to merge
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11 February 2013
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22 August 2013
Rogers & Wells and Clifford Chance are well on the way to merging, while Thelen Reid & Priest has publicly declared its intention to do so (The Lawyer, 2 August). US and UK firms are engaged in the serious business of wooing one another as transatlantic tie-ups now become a necessity for many instead of something to be avoided.
UK firms need a foothold in the US for a stake in the largest market in the world. Their clients trade internationally, and they face increasing pressure from big accountancy firms and from rivals like Clifford Chance which are turning the rhetoric of the "global law firm" into a reality.
Norton Rose, Ashurst Morris and Denton Hall are among the UK firms blazing the trail across The Pond in their search for a perfect match.
But US firms face similar pressures as they seek to service the international nature of clients' business.
Alfred Youngwood, chairman of Paul Weiss Rifkind Wharton & Garrison, which is tipped to be in one of the next few mergers, sums it up: "We have a number of clients who have said they would like us to be in London.
"We are very interested in going to London. Opening a London office is one option and so is a merger," he says.
Paul Weiss would decide on its UK strategy in the next two months, says Youngwood, but a merger would still be an option even if a London office was established.
Rumours and speculation have been rife about possible pairings.
Sullivan & Cromwell is said to be open to a UK merger. White & Case is thought to have been approached by Norton Rose. Brown & Wood has been speaking to one or two UK firms and Sonnenschein Nath & Rosenthal is in the market.
So far it has been all talk and no action. But many lawyers believe action is now needed if firms are to remain competitive.
Thelens' New York man-aging partner Jonathan Siegfried says a merger is a better option for the firm than setting up a London office. Such a venture could irritate the UK firms which, he believes could interpret the move as arrogance.
Siegfried adds: "The size of the company doesn't matter. We would not be put off merging with a much larger firm or a smaller firm. We would be looking for a merger that makes sense."
He said the most important criterion would be to find a firm with the same purpose.
Thelens is the result of a merger between two similar-sized firms on the West Coast and East Coast, and is now considered the fastest-growing firm in the US.
"What we have learnt from our merger is that if you carefully manage the culture, work ethic, vision and client base then the whole is truly greater than the sum of its parts.
"We are attracting clients that we didn't attract before our domestic merger," says Siegfried.
Siegfried believes the firms most likely to lead the main merger wave would be third-tier firms focusing on capital markets and project finance - also including IT and telecommunications - which are genuinely international sectors.
"At the end of the day, I think we could see about half a dozen US-UK mergers," he says.
Merger is seen by several firms as a better way to make an instant impression in the UK and Europe.
Colin Fergus, co-principal of US legal head-hunter Fergus Partnership Consulting says: "The problem with setting up an office in the UK is that it takes a few years to be properly up and running. With a merger, it is all done for you."
He says British lawyers are now in demand as global transactions often require British law and there has been a surge in recruiting English lawyers. Last year, US firms lured the same number of lawyers in 12 months as they had done in the whole of the previous five years.
While several second-tier New York firms are no doubt interested in going a step further and merging with a UK firm, the main push will come from the West Coast, according to Alan Hodgart co-director of legal consultants Hildebrandt International.
UK firms should woo in the West especially because of the recent explosive success of many of the firms there and the huge potential they have, he says.
"Their success is not just because of Silicon Valley but because of the huge technology base and the industries that flow from it," he says.
"These firms will want to do something serious in the next two to three years when it comes to merging across the Atlantic. A lot of UK firms have not even thought about them."
These firms are not necessarily giants. Typical of the growing West Coast firm is Heller Ehrman White & McAuliffe. Few UK firms seem to have even heard of this medium-sized firm, but its gross revenue increased by almost a fifth between 1997-98. Similarly, San Francisco-based Orrick Herrington & Sutcliffe has made no secret of the fact that it is looking over the water.
The firm's chairman has stated that it "would not mind" being in the first major wave of mergers if the right firm came along.
It is aiming for significant expansion in London, and started a 12-lawyer office in the capital a year ago as its first outpost.
Ian Johnson, partner in charge at the Threadneedle Street office, says: "From what we have said about where we want to be in the next few years, it doesn't take an Einstein to work out that a merger or a combination with another firm are options."
Morgan Lewis & Bockius, based in Philadelphia, is also heavily tipped to be keen on a merger. Charles Lubar, senior partner at the firm's London office, says recent domestic mergers added 130 more lawyers to the firm and showed Morgan Lewis had the capacity to integrate firms.
"We would be good for a UK firm that has a high IT or industrial base and wants to tap into capital markets and establish business in M&As in the US.
"The firm we want would have a presence in other international markets that we don't, and also have a strong corporate presence in the UK."
One partner who has worked for US and UK firms says other firms keen on merger would include any out-of-town firm (ie not based in New York) who had been successful in Wall Street.
The old established Wall Street "heavies" are just not interested at the moment, according to Hodgart.
"They are inherently conservative and senior partners say why should they change now because they have been so profitable without the need for a merger," he says.
"But if clients such as the investment banks start to push them by saying they want to deal with the same firm around the world, as they could with a UK international firm, then there could be a pincer movement that would make the Wall Street firms change their attitude. But that is some way off."
Although several US firms are jumping on planes to take a look over here, the onus will be mainly on the UK firms to break the ice.
"US firms are opportunistic and it would have to take a UK firm to go to them. American firms don't tend to have 10-year strategies like the Clifford Chances of this world," says one British partner at a US firm.
"Those firms that will be attractive to US firms will be those on the fringes of the magic circle, such as Lovell White Durrant or Herbert Smith. Merger in the US is seen as a means of moving to the next tier without necessarily losing their identity."
That's the rub. US firms have very strong cultures and will be hard-pressed to sacrifice this. Undaunted, Siegfried says that Thelens is now getting down to the nitty-gritty.
"We are trying to carefully understand the UK market - starting with a lot of reading.
"You don't just knock on someone's door. When you are looking for a partner, you are not invading a country but creating a partnership."
But one US partner says talk of "mergers among equals" is idealistic. "A merger is a takeover," he says.
It remains to be seen which US or UK firms are prepared to sacrifice some of their culture and identity in return for a jump up the global league table.
Teh 10 most eligible US firms
Akin Gump Strauss & Feld
Gross revenue 1998: $301m - 22.4% increase