Bingham might be seen as McKee’s saviour, but is nevertheless gaining a valuable asset
In December last year McKee Nelson chief executive Reed Auerbach outlined plans to diversify the firm from its traditional roots. The hope was for a period of transformation brought about by the financial meltdown in its core area of structured finance.
Last week the 120-lawyer firm achieved its goal, announcing it is going to be acquired by Bingham McCutchen. Half the firm will join Bingham’s Washington DC office, while the other 60 lawyers will join forces with Bingham in New York.
It would be an understatement to say that a lot has changed for McKee recently. Once a small and focused structured finance outfit, McKee is now part of a global firm spanning the US, Europe and Asia.
It has been a turbulent few years for the firm. Realising that structured finance was dwindling in late 2007, McKee made every effort to move into new areas outside its comfort zone.
In 2007 the firm hired business litigation partner Jeffrey Smith and a 16-lawyer team from King & Spalding. The group now has 37 lawyers and has thrived at the boutique.
But McKee has abandoned its hopes of making it through the crisis alone and so turned to Bingham.
Auerbach and Bingham chairman Jay Zimmerman claim the two firms have matching strategic goals and a wealth of shared clients, making them a perfect match.
“We realised that we needed access to a private equity and hedge fund client base,” says Auerbach. “While we had succeeded in diversifying our practice to a certain extent, we realised that joining Bingham would allow us to continue with our strategic goals of expanding our practice, but also of becoming an international firm.”
In return, Smith’s group provides Bingham with a well-rounded litigation team.
“McKee gives us an excellent presence in litigation for major financial institutions,” enthuses Zimmerman. “We’ve typically added capabilities against
the cycle. This is why we have a thriving restructuring and bankruptcy group. Litigation and structured finance are two things we need for now and the future.”
Although McKee’s approach to growth may appear to have changed quickly, talks have been ongoing for some time. Zimmerman and Auerbach first discussed a merger in 2008, but put the idea on ice late last year.
McKee still had hopes of making it alone, but both firms recognised McKee’s limitations. “There was still work to be done,” admits Auerbach. “We still hoped to diversify our practice alone, but we also hadn’t ruled out the idea of a merger. But we needed to trim down to be able to do that.”
In February an 11-partner structured finance team from McKee, led by partner Bill Gray, joined Ashurst.
The departures signified a sea change. McKee demonstrated it was serious about diversifying and transforming into a new firm.
“There were a lot of tensions between parts of the firm that were doing well, such as litigation, and others that had suffered,” says a former McKee partner. “There was a lot of pressure for management to adapt the firm and make it attractive for a merger.”
With structured finance unlikely to reach the levels previously enjoyed by the partnership, change was necessary.
Although pulling through the downturn without assistance did not work out for McKee, merging with Bingham is largely supported by Manhattan’s legal community.
“It’s a great match,” says US legal market consultant Bruce MacEwen of Adam Smith Esq. “McKee was limited by not having a wide-ranging corporate practice and a serious across-the-board litigation capability. It now has both.
“Bingham will benefit from McKee’s very high-end tax planning and tax litigation practice, which is a rare and a lucrative one. It’s also an entrée to McKee’s bluer than blue-chip NYC-centric financial services clientele.”
A match made in heaven? On paper it certainly seems neat. The firms already share a range of financial institution clients such as Morgan Stanley and Deutsche Bank, and both firms have capabilities that the other genuinely desires.
Bingham is no stranger to acquiring firms. McKee is Bingham’s tenth acquisition in Zimmerman’s 15 years as chairman.
The firm’s expansion in Asia has come via mergers. In 2007 it completed two mergers in Japan in the space of six months, with New Tokyo in October and Tokyo International Law Office in June that year.
“We already have a lot of experience with integration,” says Zimmerman. “We already have the space to move the DC lawyers in our office there and we’ll move New York-based lawyers between the two offices in the city. Over the coming year we’ll be focusing on integrating the two firms fully.”
McKee had been searching for a new lease of life since the downturn left its core business market for dead. The acquisition by Bingham could be viewed as a rescue mission. But McKee’s specialist skill set gives Bingham capabilities it has long sought.