On 1 October last year Paris information technology firm FG Associes moved its clientele and expertise across the Champs Elysees to join large international firm Salans Hertzfeld & Heilbronn HRK.
With a reputation which was the envy of its competitors and boasted major international clients, the move was a surprise, even in an increasingly international and aggressively competitive environment where established French firms were routinely swallowed up in a feeding frenzy of mergers and acquisitions.
Why would a firm, or “cabinet”, with its traditional French structure and a rapidly expanding practice which had not yet reached its full capacity, choose to risk its boutique reputation and be submerged by what many in France – a society of small shop-owners – see as a “supermarket” mentality to legal service-providing?
One year later, partners Bruno Gregoire Sainte-Marie and Jeffrey Hertzfeld are quick to justify the move.
Sainte-Marie, who has been established for the past 20 years in IT, co-founded FG Associes and helped develop it into one of the best-known French firms in the IT arena.
Hertzfeld is a US co-founder of Salans Hertzfeld, which practises corporate law, tax, banking, labour law, and mergers and acquisitions. Salans Hertzfeld has offices in London, New York, throughout the former Eastern bloc, and, through a series of mergers with smaller firms, has doubled its number of lawyers in the past two years.
Hertzfeld, who is admitted to various bars in the US and is also a French advocate, specialises in East-West trade and investment, is consultant to the World Bank on legal aspects of joint ventures in Russia, and has been at the forefront of corporate penetration into the Eastern bloc for the past 30 years.
The first approach came from Salans Hertzfeld. Hertzfeld says: “We had created a small internal think-tank in the Paris office with the aim of defining in what direction we should orient the firm's development. It reached the conclusion that new technologies was a leading field, and we then decided to identify the existing firms which could interest us.”
It targeted FG Associes and there followed a year of discussions between the partners of each firm.
Sainte-Marie says: “The decision to merge is a decision of anticipation. We had no immediate need to change strategy, but had the feeling that at the end of four or five years we would be confronted by a double difficulty – a difficulty of evolution and a difficulty in relation to the needs of our clients.”
Did he perceive certain risks? “Of course. The dilution or the loss of the image which we had acquired,” he says.
But Sainte-Marie's concerns were, in his view, proved unfounded. “We haven't experienced any loss of clients due to the merger. On the contrary, the merger responded to a need expressed by our clients, which was to be able to deal with questions that we could not formerly deal with, and to respond to the needs of our foreign clients.”
Hertzfeld admits that Salans Hertzfeld did not consider other IT firms in Paris. He says: “We really focused early on FG Associes, and we thought that the fit would be good. We felt there was a similarity of culture and approach, even though there was a difference in size.”
He adds: “That approach manifested itself also in the personalities involved. I think the human factor in law firms is often neglected and in our firm we consider that extremely important.
“You have to feel comfortable with the people who are your partners. And we looked at FG Associes as a firm of entrepreneurs who had started up a practice and had approached it professionally and effectively, and we admired that.”
However, certain lawyers at FG Associes were concerned about the change, which represented a major professional upheaval, and for many a daunting change of language.
Sainte-Marie says: “We are very close to our lawyers, so we gave a sign at the beginning of the year to better redefine their perspectives, and we have not lost any lawyers. We established training for those whose level of English was not sufficient, and the most part today speak English at a professional level.”
Despite the changes, the FG Associes' team remains physically together, located in a separate part of the building.
Hertzfeld says: “I think it's important from the point of efficiency. You don't want to make the work more difficult, which would be more costly for the client.
“I think as an international firm, there will be a tendency to go more and more towards specialisation within the firm and a sort of grouping of lawyers in their area of speciality. Which is not to say that it is hermetic. The clients like to see a team, and with FG Associes, we want to maintain this genre of distinctiveness. It gives a certain weight to say that we have a new technology team.”
This desire to maintain FG Associes individuality led it to keep, for example, its own website. “We have conserved a certain number of distinctive elements within our merger agreement for a period of two years. It was important that the clients saw that they were not losing the firm that they had known,” says Sainte-Marie.
Hertzfeld adds that Salans Hertzfeld also had every interest in preserving the continuity of what FG Associes had constructed.
But both agree that there has been a level of synergy between the two firms. “Obviously this didn't begin immediately,” says Sainte-Marie. “But month after month, we have concluded that we are growing in strength.”
Hertzfeld says: “There are problems which one must manage, which form part of the role of the management of a firm. We no doubt consecrated more time to management, but that was mostly due to the necessity of managing the merger, because to merge is a process.” But he adds that there were no other specific problems relating to integration.
Both Sainte-Marie and Hertzfeld agree that there is considerable resistance within the profession to such mergers. Sainte-Marie explains: “The French mentality is not always prepared for sharing or collective efficiency. It's also a question of structure, because French firms are structured very differently from those in England or the US.”
Hertzfeld adds: “As I look around at the French domestic firms – and we view ourselves as a French cabinet – we don't see French firms that are growing and that are likely to play a role in the whole process of globalisation. We see the UK firms moving into the French market and growing rapidly and that's because they offer a multinational approach to their clients.
“I'm a little worried about where the French firms are likely to end up in this process. What is happening today is clearly a globalisation of business, and all the enterprises which serve those businesses – banks, accounting, and now law.”
Hertzfeld believes that to compete globally firms have to be bigger.
He says: “There is still an opportunity for a boutique firm to exist and to be profitable in France, but I don't see the continuity of such a firm. When the star partner retires, the associates have no future, because their niche depends very much on the personality of the leading partner. It's individualistic thinking, it's a traditional cabinet mentality, and it's perhaps very typical of the way French law has always been practised, but the markets have changed. We hope maybe we can wave a French flag in the globalisation process as it evolves.”
Hertzfeld's advice to firms envisaging a merger is firstly to define their objective. He says: “It might be perfectly acceptable for a boutique to remain a boutique. Not everybody has to be international, there's no fatality about merging. If they consider merging they have to be sure that their long-term objectives are compatible with the objectives of the firm they'd be merging with. That should be the first focus of their discussion. Then they have to be satisfied with the culture of that firm.”
He believes that a merger is like getting married, and that there is a period of adjustment. “It takes an effort, so you've got to be prepared for the effort, and motivated to make it work. I think that the larger structures are necessary to compete with the mega-UK firms which are very dynamic, with the large accounting firms that are now in the legal professions, and with large US firms which have been very slow to come to Europe.”
Sainte-Marie agrees. “It necessitates having vision in the middle term, and to not always measure the benefits or the inconveniences with a short-term vision. It's a projection into the future. To merge just to merge has no meaning. To merge is to amplify what we have, with others who also have a long-term vision.”