Why the Yanks aren't coming
28 February 2000
28 October 2013
3 September 2013
9 September 2013
18 February 2013
11 July 2013
While US firms hungrily eye successful UK firms in the hope of marriage, IP/IT practices in London seem anything but keen. Claire Smith discovers why the merger talks keep on breaking down.
When the partners at Bird & Bird read of the failed merger talks between IP/IT firm Rakisons and US practice LeBoeuf Lamb Greene & MacRae (The Lawyer, 14 February) they probably already knew that their own merger plans would soon be making the headlines.
For the firm's planned IT and telecoms-based transatlantic link-up was also destined to fail, and the partners threw in the towel a week later (The Lawyer, 21 February).
According to a press statement, Bird & Bird blames the failure of its talks with Orrick Herrington & Sutcliffe on "several issues, including economics and growth objectives and client conflicts".
But the collapse of two rounds of talks in as many weeks raises questions about why predatory US firms cannot find marriage partners, particularly among the IP/IT firms they are so keen to pick up.
A top lawyer at a leading media technology firm says: "The Americans want the firm, they want the people and they want the position, but they are not prepared to pay for it. The mergers keep on failing because the UK partners think 'why am I selling myself when I am alright as I am?'"
He says that firms like his are attractive to US practices because they are profitable and focused, but because they are doing well they have no need to link arms with lawyers across the Atlantic.
Sources close to Bird & Bird say that a clash of cultures had a lot to do with the breakdown of its merger talks and some partners are understood to have been worried about losing autonomy on issues such as associate wages.
An insider tells The Lawyer: "The last thing partners wanted was to become part of a conglomerate. Bird & Bird is a very traditional practice, it is run like a very small old-fashioned firm in lots of ways. Orrick is quite thrusting."
The firm denies any kind of split between corporate and IP, but IT partner Hamish Sandison admits that there was at least one serious client conflict issue stalling the talks and it was in the IP department.
David Temporal, principal at legal management consultant Altman Weil, says that Rakisons' situation probably mirrored this.
He says: "I would guess there are some similarities in why these two deals have broken down. The common issue has been that of control, I am sure. The US firms generally think that they are better and bring more to the partnership. The words are all about merger but as the issue starts to pan out it becomes clear that there is a takeover. That is why we have seen these breakdowns."
David Llewelyn, who left his own IP practice Llewelyn Zeitman for US firm White & Case last year, believes that the practice area is particularly reluctant to give up any control.
He says: "One of the things which my experience of IP lawyers has shown me is that they are easily more individualistic than lawyers practising in other areas. It is an area that is changing very quickly and they do not like people coming in and telling them what to do."
But the media technology sector is what firms from the US are after, and they seem determined to get it. A number of firms are understood to be on the lookout to boost their practices, including LeBoeufs, Brobeck Hale and Dorr, Arnold & Porter and Morrison & Foerster.
The attraction is the combination of maintaining a service for their existing clients and increasing their stake in the practice area as it becomes more international. Telecommunications is recognised as one of the fastest growing industries and is regarded by law firms as a good service which will attract clients and build a strong practice.
And by targeting profitable IP/IT firms in the UK there is no fear that profits will be affected.
A media practice source says: "We are a nice size and we have got focus. They cannot cope with going to a 600 or 700 person firm. It is a fact that we are very profitable so we are not diluting their profits."
There are far more US firms chasing telecoms merger partners than there are UK candidates. The most obvious contenders in London are Bird & Bird and Olswang, closely followed by niche firms like Rakisons and Bristows, a 20-partner media technology firm based in the City.
Rakisons senior partner Tony Wollenberg has always denied that his firm was involved in any failed merger talks. But he says that there are a lot of problems for practices like his in finding the right firm to team up with.
He says: "There are a number of US firms, both east and west coast, which consider that they cannot adequately serve their clients without a London base. We first started looking at the merger issue in 1993 when we were talking to Morgan Lewis & Bockius, but they didn't seem right. It is certainly an issue which has many pros and cons.
"One of the cons is that we have a wide network of connections with firms in the US, both east and west, and clearly the value of those would be massively eroded if we were to have one exclusive link-up."
Wollenberg believes that this particular disadvantage is an issue for many UK niche firms.
However, he can see the attraction of merging. He says: "There is a question mark over the survival of small to medium firms which are in competition with the big players.
"If the Americans continue to come over here and pay these staggering rates one has to recognise the fact that one's very best people are market aware and not everyone takes a long-term view."
And the fact that so many Silicon Valley-based US firms have hiked up their assistant's salaries makes a fit with a UK practice even more complicated.
Bird & Bird was no doubt attracted to the Orrick merger by the prospect of a strong finance practice to back up its media capability.
Only last week it was revealed that the firm had lost out to Linklaters on the US and UK listing of internet client Lastminute.com.
Bird & Bird has acted for the client since it was founded in 1998, but was not called on to represent it on its reported £400m initial public offering on the London Stock Exchange and Nasdaq.
Temporal says: "Bird & Bird was looking to actually strengthen its ability to handle higher end international transactions with a UK and a US angle. It was after both a US and UK capability, as well as acting for the corporates in both markets."
So if there are potential gains for both sides in producing a successful link-up, what is standing in the way?
William Charnley, managing partner of the London office of US firm McDermott Will & Emery, says: "I think trying to put two firms together that are in two totally different geographical areas will always be difficult.
"I do not think you would ever get a merger of equality - there is never a merger of equals. There is always somebody that becomes dominant whether at the start or later on in the relationship."
Charnley says that his firm would rather take leading individuals instead of going for a merger, but developing the IT/IP practice area is a top priority.
A partner at a top US firm in London believes that the mergers keep on failing because US firms are not prepared to pick up parts of the UK firm that are outside its core.
"If you are going to be taking over a firm you only want to take on what you want - you do not want anybody who is dead wood. That is why so many of the talks have broken down," he says.
A lot of the IT/IP firms also carry property or private client work which merger partners are not interested in taking on. It could well be that those departments will have to split away before a marriage can go through. Either that or the US firms will have to review their domineering approach.
Temporal says: "I do not think the merger talks will keep failing. I suspect they will not work until US firms become more sensitive to the issue of managing an international firm.
"They need to recognise the differences between US and UK firms, and they need to recognise them very early on in the negotiations if it is going to succeed."