Will merger mania spell the end for Euro-networks?

If rumours are to be believed, the current favoured habitat of the great and the good from middle-tier firms is the departure lounge.

Skulking around, waiting for the next shuttle to Euroland while avoiding alerting any rivals to their presence, they pursue the silent chase to snap up a fashionable continental firm – the must-have accessory for any ambitious law firm this season.

Dibb Lupton Alsop, Pinsent Curtis, SJ Berwin, Berrymans Lace Mawer, Eversheds, and Simmons & Simmons are all joining in the European treasure hunt. But where does this leave organisations like the World Law Group (WLG) and Lex Mundi, which have traditionally provided an international network for continental firms?

Though those two are probably the best-known and biggest of the affiliations, there are literally dozens of different groupings world-wide with varying degrees of usefulness.

“There is a vast number of organisations, with rules, without rules, big, little and indifferent,” says Victor Semmens, director, international, at Eversheds.

Cameron McKenna made the headlines last week when the Danish member of its CMS alliance, Schluter & Hald, merged with Copenhagen practice Dragsted & Helmer Nielson (The Lawyer, 7 June).

Dragsteds is already a member of the World Law Group, so the merger has raised questions not only on where the firm's future allegiances will lie, but more generally on whether such affiliations have a future when the globalisation of both large and middle-tier firms sees many members snapped up into all-iances and mergers.

The ans-wer, it would seem, is that Dragsteds' loyalty will re-main firmly within CMS, which has publicly said that within three years it aims to be a single European integrated firm.

“The WLG is a different animal from CMS,” explains Dick Taylor, chairman of CMS's executive committee. “They are two organisations with very different aims. The WLG isn't a vehicle for the integration of member firms. There are 50 firms which are members but they don't market together as such, they refer work between each other.

“CMS, on the other hand, contains a much smaller number of firms and the great difference is that our ambition is to get closer and closer.”

Although Taylor stresses there is no reason why members of CMS should not also be members of the WLG, the unwritten understanding in such a situation is that the latter should fill in the gaps where CMS does not have coverage.

This may leave CMS and Dragsted in a cosy position where the latter will gain work from members of both the CMS alliance and the WLG, but it leaves other members of the WLG in a rather one-way relationship.

Take one hypothetical situation: if a German member of WLG needs work doing in Denmark then it would refer work to Dragsted, but any return work would go to CMS's German member, Hasche Sigle Eschenlohr Peltzer.

However, Heinz Zimmermann, a partner at Oppenhoff & Radler, argues that this has always been the case in the legal market.

Oppenhoffs was one of the founding members of Lex Mundi – set up in 1989 and now with 143 members worldwide – but the firm is now also a member of Linklaters & Alliance.

The firm's membership of Lex Mundi and how it affects Oppenhoffs' position within the alliance has, he admits, been discussed with Linklaters. “In places where we are represented by Linklaters & Alliance, we use this network in the first place, but there are still many other jurisdictions that the Alliance does not cover,” says Zimmermann.

“The flow of work between law firms has not always been equal in the way that work has been switched from one firm to another.”

Zimmermann claims that when companies from the US were investing in Europe, they brought far more work to European firms than Europe sent back.

Lex Mundi was formed by Houston-based lawyer Stephen McGarry, who continues to do the groundwork to find new members, which are ideally selected from the top three firms in any jurisdiction.

However, the organisation's stated intention last year to find a London law firm, after years of treating the market as an “open city” (reflecting the fact that many members already had relationships with London firms), has so far not produced a new member.

“There has been no progress so far because there is a lot of choice and some law firms have different strategies for international work,” explains Zimmermann. “For example, Clifford Chance has a stand-alone strategy.”

But one second-tier law firm's managing partner believes there might be other reasons behind the failure to sign up a London firm.

“I think Lex Mundi is a complete waste of time,” he says. “What the client is looking for in Europe and globally is a co-ordinated service which is preferably controlled from one central point.

“Why should general counsel in a large company find a loose affiliation at all attractive if other firms can put in place an integrated operation that gives a uniform service?”

This attitude is reflected by a leading legal consultant who has recently worked for one of the better-known affiliations and did not wish to be named.

“You have to ask yourself what the purpose of these groupings is,” he says. “Lex Mundi, for example, is a large organisation covering law firms all over the world – from frankly third-division teams to Gide in Paris.

“If clients are looking for consistency in global coverage then I doubt affiliations such as Lex Mundi can provide it.”

He continues: “How can a partner in one firm ensure that a client that needs work done in another jurisdiction gets the same level of service from a member firm?

“My personal feeling is that it is only useful for claiming territory and saying to clients that the firm has worldwide coverage, or for tertiary jurisdictions – for instance, obscure places that are not very important but may occasionally be useful.”

He also warns against the high expectations of members that such affiliations will stop the invasion of accountancy firms into the legal market.

“Accountants are going to be a particular problem because they have more day-to-day contact with companies than lawyers and so it is much easier for them to refer clients on to their overseas network,” he claims.

“Also, the gap between medium-size firms (who find these affiliations particularly useful) and the big players is going to grow as globalisation arrives. Many of them think the likes of Linklaters will only be looking to do global capital markets work but the truth is they will also be looking to pick up the best domestic work.”

Eversheds has also retained membership of the WLG despite its current empire-building overseas. Eversheds' Semmens says that although within Europe the firm's membership “doesn't really make any sense”, it still has its uses globally.

“It helps in researching lawyers in areas where you would not want to invest energy in finding them – for instance, Chile. But membership makes a lot of sense the other way round, allowing, for example, a Chilean law firm access to the sort of structure that it would not be able to build up otherwise,” he says.

He admits that the growing trend towards firms building up their own networks will inevitably lead to tensions within existing affiliations.

“In the US, firms traditionally did not compete outside their own state but now they do,” he argues. He believes the same trend is now set to appear in Europe.

It is easy to focus on the big alliances and the biggest firms' merger plans in Europe and lose sight of the smaller firms. CMS's high-profile plan to create a global firm deflects attention away from the strategies of middle-range firms facing up to globalisation of business and new markets. These firms have traditionally looked to the sort of alliances exemplified by WLG and Lex Mundi.

As firms expand to effectively take over practices from within these alliances, the problem of loyalty and business arrangements is not one that impacts the large-scale firm but the affiliation member and its fellow partners.

The affiliations are being pinched from both sides. Members are looking for merger partners to build their own position, and larger-scale firms are snapping up middle-tier firms.

Analysts may doubt the effectiveness of alliances such as Lex Mundi, but middle-sized firms are still investing in them. The question, however, may not be whether they work, but whether they have a future.

The middle-tier firms may have hoped that affiliations would be a defence against the encroachment of accountancy firms but it looks increasingly like that hope may be forlorn.

As one source said: “I was speaking to an American lawyer the other day about the new affiliation he has joined. He admitted he didn't think the relationship would last long because he attended a meeting of the group recently where there were five London firms sitting around the table and previously one member had been linked to accountants.”

Ten affiliations and their UK members

Lex Mundi – Bird Semple, Glasgow. Covers 60 countries worldwide.

CLA Commercial Law Affiliates – Radcliffes, London, Prettys, Ipswich. Covers 37 countries worldwide.

World Law Group – Eversheds, McClure Naismith Anderson & Gardiner, Scotland. Covers 13 countries.

Terralex – Reynolds Porter Chamberlain, London. Covers 54 countries.

Association of European Lawyers – Charles Russell, London, Morgan Bruce, Cardiff. Covers 19 European countries.

The American Law Firm Association – Charles Russell, London. Covers Canada, France, US.

Interlex – Taylor Joynson Garrett, London. Covers 18 countries worldwide.

Interlaw – SJ Berwin & Co, London. Covers 33 countries worldwide.

Legit (IT law specialist) – Tarlo Lyons, London. Covers 17 countries worldwide.

EE LEX International Practice Group – Davies Wallis Foyster, Hedleys, Surrey, Lawrence Jones, London. Covers 12 European countries.