“This is way bigger than Gouldens, Rowe & Maw and even DLA,” claims one London-based legal consultant. “After Clifford Chance-Rogers & Wells, this is the biggest ever.”
The benefits for Lovells seem clear. Topping the list is the fact that the combination would give the UK firm a far deeper and broader bench in the US, the world’s largest legal market and one where until now Lovells has made only a minimal impact. As reported by The Lawyer last week (12 October), Lovells is even prepared to abandon its lockstep to push the deal through.
But what is in it for Hogan? And, frankly, who is Hogan? Certainly, as far as the massively competitive UK market is concerned, it is a firm that has made an impact similar
in profile to Lovells’ in the US.
“[Hogan] has made quite bold growth ambitions over the years, but has failed to find a solid niche in the City,” is how one London-based legal recruiter put it last week.
Stateside it is a different story. Hogan ranks as one of the largest law firms in Washington DC, where its closest rivals include Arnold & Porter, Covington & Burling and WilmerHale. Although the news of the merger talks might not have set New York alight – with one white-shoe partner claiming it was “bigger news over there [in the UK] from what I can gauge” – that is arguably because, if Hogan is a player at all, it is a player in DC.
Hogan’s financial results for its most recent fiscal period, the 2008 calendar year, bear comparison to Lovells’. Total revenue at the 500-partner firm stood at $922.5m (£583.7m). Revenue per lawyer (RPL) was $835,000 (£528,000), while the all-important average profit per equity partner (PEP) stood at $1.17m (£740,000). (Lovells’ turnover for 2008-09 was £531m, RPL £374,000 and PEP £586,000.
But this deal, if it goes ahead, is about more than complementary financials. At its core is an ambitious plan to transform two upper mid-market firms with decent though not spectacular practices (the odd top-tier niche aside) into a genuine global player.
“Too often we see these things as a US-UK merger,” adds the London consultant. “In my opinion it’s anything but that. This is as much about the Far East and Continental Europe for Hogan.”
Of course, right now neither side will even confirm the existence of merger talks, although several sources close to both firms are happy to do so off the record.
So to get a feel for what attracted Lovells in the first place to the US firm, The Lawyer asked one of Hogan’s recent lateral hires – indeed, one of the highest-profile lateral hires in the US market so far this year, legendary former Skadden Arps Slate Meagher & Flom litigation partner Bob Bennett – what he had seen in the firm.
Bennett, who joined Hogan as a partner in the firm’s DC office along with fellow Skadden partner Carl Rauh last month, has no doubt about the qualities of Hogan (a firm he spent several years at earlier in his career).
“I was attracted by the powerful international aspects of Hogan’s office network,” says Bennett, who refused to discuss the talks, or their existence. “Law enforcement today is focusing on companies that have international offices. For example, because of legislation like the FCPA [Foreign Corrupt Practices Act], which had been asleep for years, clients with offices all over the world now find themselves very high up the priority list of the Department of Justice.”
The fraud division of the Justice Department, Bennett says, currently had an “enormous” number of matters on its books.
“I believe the Asia market will be the next market for the FCPA,” Bennett adds.
Of course, there has to be some US connection, but recent history suggests that this division is more than willing to pursue cases when there is not exactly a great deal of connectivity. That could include a scenario whereby the company uses a US bank or has a small US subsidiary.
“Even if a company is 95 per cent foreign the division is willing to go after the 5 per cent US connection,” confirms Bennett.
That has implications for all international firms. Clearly, at least as far as the disputes practice goes, it will also be a central plank of the rationale for any Lovells/ Hogan merger negotiations that may – or may not – be taking place.
The debatable shift in the balance of power in the US from New York to DC, thanks to increasing regulation and the US government’s willingness to step in, will inevitably have an impact on law firms.
“Forty per cent of my matters have an international aspect,” says Bennett.
Of course, the merger is far from a done deal. And even if it does go ahead there are plenty of examples of failed deals to suggest that all might not be plain sailing.
As KermaPartners consultant Friedrich Blase puts it: “It’s an interesting debate as to whether a strength-strength combination is better than a strength-weakness combination. The former can lead to conflicts and partner departures at the top end. The latter either never pays off – because firms fail to do what’s necessary for that, especially on the transatlantic scene – or comes with a lateral hiring spree after the merger to upgrade the complement on the weak side.”
Even so, the current thinking is that Hogan’s management will be “cock-a-hoop”, as one London recruitment consultant puts it, if it manages to secure the largest high-quality UK firm by revenue outside the magic circle – and one in which around 60 per cent of its lawyers are already outside the UK.