29 July 2002
Deal count is down, there is very little big ticket M&A and capital markets work around and there is little sign of the market picking up, but the fact is that US firms have stood their ground. Despite the UK assertion that the Yanks would turn their backs and walk at the first sign of trouble, US firms have proved that they are in it for the long haul. Like it or lump it.
This doesn't mean that all US firms have got it right, and neither does it instantly verify which strategy works, but what it does do is force UK firms to re-evaluate their attitudes to the competition.
A number of US firms have hit murky waters - the obvious examples being Brobeck Hale and Dorr, Buchanan Ingersoll and Shearman & Sterling. The circumstances for each firm are very different, but all relate to over-investment. Brobeck can and does blame the bursting of the technology bubble, while Buchanan's defections come down to a badly thought-out strategy. Shearman, however, is slightly different. In many respects the firm is still the pioneer of the successful European strategy, particularly in Germany, where, in terms of US firms, it is second to none, but its current predicament does raise the question of whether it can afford its narrow focus on M&A, capital markets, projects and tax.
Other firms which are likely to be suffering are those here to service their US clients on big-ticket work. Given that there is little of this around at the moment, most will be looking to move temporarily into the bread and butter markets. Unfortunately, you can bet your life that the UK firms will be jealously guarding their market share, unwilling to let any of the work slip from their grasp, even if it means heavily competitive pricing. Despite this, there is no sign of retreat from the likes of Skadden Arps Slate Meagher & Flom, Cravath Swaine & Moore, Davis Polk & Wardwell or Sullivan & Cromwell.
On a more positive note, the dearth in M&A means that there is a lot of potential in the recruitment market and US firms are seeing more high-quality lawyers on the market. Some of this is a result of the times and a natural response to the slowdown. However, the speed of growth in the magic circle must also be a contributing factor. Some lawyers don't want to be part of such vast partnerships and the US firms are an obvious alternative.
But now that firms have the opportunity to cherry pick, the question remains: is it too late? For a number of firms the obvious role model is Cleary Gottlieb Steen & Hamilton. With a strategy of organic growth and by cherry picking the stars it has built strong European offices, particularly in Paris, Rome and Brussels where the work it targets is the crème de la crème. But this has taken time and it is not necessarily going to be possible for firms to follow easily in its footsteps given the vast increase in competition.
The other option open to emulate is the full-service model. White & Case and Jones Day Reavis & Pogue are the obvious examples - White & Case has built on its relationships with financial institutions, while Jones Day focuses on its corporate clients. Latham & Watkins and Mayer Brown Rowe & Maw look like possible candidates to follow suit. In the current economic climate this would make sense. As long as integration issues are tackled, merging with a single office, like Latham in France and Germany, provides a quick and stable method of growth. Despite cries in the market that on the one hand Latham has done too much too quickly and on the other that it will struggle to find enough people to continue this sort of growth, it's a case of so far so good.
The strain on the market at the moment may not have achieved the anticipated withdrawal by US firms, but it has caused a renewed interest in their strategy. It has also refocused decisions on what is achievable. Right now it seems the jury is out and as a result it is only possible to guess what route firms will take.