The legal world awoke last Tuesday to news of the merger of Wilde Sapte and Denton Hall. It was surprised, but perhaps not shocked. As Laurence Harris, assistant chief executive of DJ Freeman, says: “This particular merger has been kept well secret, but the idea of a merger of these firms seems somehow predictable.”
Wilde Sapte and Denton Hall have a history of failed marriages. Some would say they have been dumped at the altar a few times, and both were looking for a long-term partner.
Wilde Sapte was in talks with three of the top five accountancy firms last year (The Lawyer, 16 June 1998) most notably Arthur Andersen, which backed out of talks after big-hitting asset finance partners David Smith and Mario Jacovides left for Allen & Overy (The Lawyer, 9 June 1998). The firm has made no secret of looking to try again.
Denton Hall has a similar past. It has backed out of two tripartite mergers. In 1996 it unexpectedly pulled out of talks with Cameron Markby Hewitt and McKenna & Co (The Lawyer, 12 November 1996), later to form the firm Cameron McKenna. And talks with Richards Butler and Theodore Goddard turned sour last year after disputes over integration of the Hong Kong offices of Denton Hall and Richards Butler could not be resolved (The Lawyer, 27 October 1998).
It is understandable that two firms on the rebound from failed mergers should fall into each other's arms. Both firms had problems that appear connected to their commitments to merge in the past.
Wilde Sapte was rocked by a partner exodus, including the resignation of all partners in its Paris office (The Lawyer, 9 August 1999). The firm is widely regarded as having a number of disgruntled equity partners bound by the firm's constitution, which allows only two equity partners to leave a year and demands two years' notice (The Lawyer, 5 July 1999). Denton Hall has seen a flight of lawyers from its Hong Kong practice after its last merger attempt failed.
Announcing a merger, the firms hope, will now allow the staff at both firms to get back to business. However, the process has not been without its casualties.
Wilde Sapte's partner numbers will be decimated by the merger. Equity partners James Johnson, Nick Syson and Jonathan Shann, and junior equity partner Matthew French are leaving because of it. And this merger will receive the impact of the fall-out from the firm's failed merger with Arthur Andersen in 1998. Philip Rocher is going to Clifford Chance in January 2000, because his principle client, Deloitte & Touche, insists he must move if he is to continue working for them (The Lawyer, 13 September 1999).
And partners in the Wilde Sapte departure queue who have been waiting to leave, but could not do so because of the firm's constitution, will be free to go on 1 February 2000, when the firms officially merge. This includes the remaining partners in the Paris office – Tom Macdonald, who is going to White & Case (The Lawyer, 6 August 1999), and Richard Macklin. Bruce Johnston in Wilde Sapte's London office is also going. He is joining US firm Weil Gotshal & Manges ( The Lawyer, 24 May 1999).
Despite this, on paper the merger appears sound. Jonathan Brenner, director and founder of legal consultants ZMB, says: “Both firms are strong in certain areas that are complementary to each other. Wilde Sapte has a good finance and banking practice. Denton Hall has a strong international and media practice. These are significantly complementary areas.”
And there are practical advantages to the merger. Many firms require international capabilities to service international clients who are rapidly expanding. As Mark Andrews, previously senior partner of Wilde Sapte and now deputy chairman of Denton Wilde Sapte, says: “Clients want international coverage.”
The new firm is hoping that clients that only used one or other of the firms for its specialised area may now consult Denton Wilde Sapte on a broader range of business. Steve Blakeley, former managing partner of Wilde Sapte who is now managing partner of strategic initiatives at the merged firm, says: “One of the things that makes this merger make sense is that both businesses can generate more business from their client network. We will spin business off to each other. We immediately have more business from our clients. On top of that we can get out and build some more.”
Blakeley adds that a survey by Wilde Sapte last year shows that clients want the firm to be more international. Many clients confirm this is the case, and say they will support the merger on this basis.
Davies Elder, managing director of Lombard Corporate Finance, says: “We have been using Wilde Sapte for many years. We are delighted by the merger because it gives the firm another dimension. Denton Hall has been on the other side of deals. We will continue to use Denton Wilde Sapte.”
But there is not universal agreement on the merits of the merger. Some analysts think the marriage is badly thought through. One observer says: “I think it is just a marriage of convenience. Wilde Sapte have been on the hunt for a merger partner since its failed merger with Arthur Andersen. For Denton Hall it is very much third-time lucky. They were the only ones left to partner with.”
It will take time before anyone can know if this pessimistic view is justified. But, regardless of this, there are issues that need to be overcome if the optimists are to be proved right. First off, the firms need to learn to live with each other.
Harris says: “They will need to make two and two equal five. However a merger looks on paper, the proof is how people get on merging the cultures and taking steps to make sure the merged firms can work.”
Denton Wilde Sapte's new management team insists the two firms will mix together well, but some feel the two management teams have simply been glued together with no one losing their job and an overly complicated, some would say clumsy, structure, with roles and responsibilities being repeated.
With three managing partners and two chairmen, it can be asked, who makes the decisions?
Wilde Sapte managing partner Steve Blakeley becomes managing partner of strategic initiatives. Mark Andrews, the senior partner of Wilde Sapte, changes title to deputy chairman. Denton Hall's chairman James Dallas is now chairman of both firms. Virginia Glastonbury, managing partner UK of Denton Hall becomes managing partner UK of Denton Wilde Sapte, and David Moroney of Denton Hall remains managing partner international.
Harris says the merger and restructuring of a firm must start from the top. He says: “Management needs to be reorganised to make the cultures work.”
Alan Hodgart, European director of legal consultancy Hildebrandt, says: “The firms have different cultures. They are going to have to get them into one building to resolve that.”
But the firm's management disagrees. Dallas says: “We will be in the same two main offices. We will be able to continue to do that. It is hard to be in a single office.” But he concedes: “We will look over time at being in one office.”
This lack of assimilation hints at how quickly the merger was rushed through. Blakeley says the management of the two firms started negotiating last month.
On Thursday 7 October partners were informed for the first time, and on the following Monday they voted on the issue. Even Jonathan Tatten, former managing partner at Denton Hall, agrees that the merger was delivered at speed. Tatten says: “The negotiations have been quite quick.”
The new firm hopes the speed of the merger will not mean that lawyers at the firm will form two camps. But analysts say this may happen in some areas, especially in banking, where Wilde Sapte is stronger. One expert says: “Denton Hall's banking practice may become marginalised. How will they be affected by the huge influx of Wilde Sapte?”
But Dallas says this is unfair. He says: “Our 12 banking partners at Denton Hall are good. They are very effective. They will not feel overshadowed by Wilde Sapte lawyers.”
Another hurdle for Denton Wilde Sapte is marrying the aspirations of the two firms. Denton Hall has been looking for a US merger partner. One analyst says: “Denton Hall has stated an intention to build a US capability. But Wilde Sapte does not give it any US link at all.”
Dallas expects the merger will create a more attractive firm for US merger partners. But analysts say it also provides a partnership too formidable for many US firms.
One expert says: “They think they will have much more leverage with US firms because they will have a good finance practice. But it is a much bigger organisation to link up with, so it may be off-putting to [US firms].”
When this is put to Dallas, he answers: “Smaller ones may be put off.”
Wilde Sapte's aspiration is to catch up with the top five. Dallas admits that being a niche practice is not an option.
Blakeley says: “In time, we expect to be catching up with the magic circle in our sectors. We aim to be one of the firms of automatic choice for work in the international sector.”
But Denton Wilde Sapte is still a firm in the second tier, which is weakening over time in comparison to the magic circle and niche firms (The Lawyer, 27 September 1999). As Hodgart says: “They are neither magic circle nor a niche practice. So they are in the group below the magic circle that is struggling.”
However, although the merger may strengthen both firms' positions in the market, it is unlikely that the Denton Wilde Sapte will ever be ranked in the magic circle.
It could therefore be argued that the merger seems partly fuelled by desperation to get out of the second tier.
But it does seem to be a smart move. Both firms benefit from each other's expertise. Their international presence broadens and becomes harder-hitting now that Wilde Sapte's banking skills can travel. And consolidation is client led.
But if the merger is to work, management at the new firm will have to look closely at its own strategy, as well as what clients demand.
March 1998: More than 90 per cent of Wilde Sapte partners vote for merger with Arthur Andersen in principle.
April 1998: Arthur Andersen chooses Wilde Sapte over Simmons & Simmons as a merger partner.
May 1998: Asset finance partners David Smith and Mario Jacovides resign to join Allen & Overy.
June 1998: Price Waterhouse looking to link with Wilde Sapte. Arthur Andersen pulls out of merger. It cites the departure of Smith and Jacovides as the reason.
June 1999: Steve Blakeley, managing partner, says he has been in merger talks with three of the big five accountancy firms.
September 1999: Merger talks start seriously with Denton Hall.
7 October 1991: Idea of merger put to partners.
11 October 1999: Partners vote to merge with Denton Hall.
November 1996: Denton Hall discovered to be in merger talks with Cameron Markby Hewitt and McKenna & Co. It pulls out at the eleventh hour. The other firms go on to form Cameron McKenna.
September 1998: Merger talks struck-up between Denton Hall, Richards Butler and Theodore Goddard.
October 1998: Denton Hall pulls out of merger talks with Richards Butler and Theodore Goddard following disputes between the Hong Kong offices of Denton Hall and Richards Butler. Denton Hall acquires 42-lawyer Middle East practice Fox & Gibbons.
January 1999: Denton Hall closes its US office after only a year because of lack of work. Denton Hall opens in Dubai.
March 1999: Denton Hall brings Swedish firm Wistrand into its international alliance comprising Denmark, Norway, Austria, France, Germany and Spain.