Most US firms have used London as a gateway to Europe. The city's status as Europe's leading finance centre, coupled with the prevalence of English law in international transactions, has helped the UK become the staging post for a broader US invasion of Europe.
There are dozens of US firms with a presence in London alone – from the big Wall Street players to niche IT operations. But among these, there is a wide range of strategies when it comes to taking on Europe. Observers claim that the reasons for the different strategies include the firms' areas of strength, historical accident and the demands of clients. Some sources even say it is all down to confusion.
Brad Hildebrandt, chairman of the US office of legal consultants Hildebrandt International, believes the most notable aspect of US firms' European strategy is its absence.
“US firms have historically not focused on the European market,” he says, arguing that US firms have been slow to react to European integration and UK firms' feisty Continental expansion.
Generally, US firms in Europe can be divided between those which are steadfastly attached to US law and those whose European offices practise local law.
Among the first group are some of the top Wall Street firms such as Cravath Swaine & Moore, Simpson Thacher & Bartlett and Davis Polk & Wardwell. These firms have strong links with the US investment banks and long-standing relationships with top continental law firms, with which they exchange referrals.
Cravaths is perhaps the most extreme example of this approach. The firm does not take on lawyers qualified in anything other than US law. One reason for this is that Cravaths has a strict policy of not hiring partners or partnership-track associates from outside the firm.
Furthermore, it has only three offices in the world – in New York, Hong Kong and London. Despite the firm's only European office being in the UK, London managing partner David Brownwood says that between 25 and 30 per cent of the firm's corporate work is in Europe.
Brownwood sees no reason for the firm to open offices in other European countries. He says that Cravaths prefers to cultivate “close, friendly relationships” for referrals with individual firms in each jurisdiction.
However, one problem with this approach is that the leading US firms may run out of high-calibre European counterparts to do referral work. Both the French and German legal markets have become less stable and are ripe for mergers – either at home or with the more voracious UK or US players. The US-only firms may find they are increasingly referring work to firms which are allied to their competitors.
Secondly, says Hildebrandt, clients often want firms to provide expertise both in US and local law: “Clients want them to be able to do both at the same time. While some firms are very successful at the moment in practising US law for US clients, that may not be the future of law practice.”
Other firms which started off with an exclusive US focus have begun to re-examine their stance. Last September, Simpson Thacher, the Wall Street M&A giant, announced it was taking on English and European lawyers as a “precautionary” measure incase it decided to move into local law.
Not all US firms have built their businesses on US law. At the other end of the spectrum is US-based international firm White & Case. The firm has “been here since before the Ark”, quips London partner Peter Finlay.
It first opened in Paris in the 1930s at the request of a major client and has since built an extensive central and eastern European network in addition to its London, Paris, Brussels and Scandanavian offices, all of which practise local law, with offices working closely together on cross-border deals. “It is a strategy that we have had for a long time,” says Finlay.
Shearmans partner Stephen Mostyn-Williams says the firm's London and Paris offices are staffed with roughly equal numbers of local and US lawyers, while its German offices in Dusseldorf and Frankfurt mainly comprise German lawyers.
“We try to look at Europe as a corporate whole and position ourselves to supply services to our global client base of leading corporates and investment banks,” he says. As well as its strengths in M&A, in France Shearmans advised on the privatisation of France Telecom and “every French privatisation last year”. The firm has built its European network through setting up offices with US lawyers and making lateral hires, he adds.
Clearys, meanwhile, has grown its own offices in Paris, Brussels, Frankfurt and Rome. It concentrates on M&A and capital markets, complemented by tax, competition and antitrust. Christof von Dryander, a partner in the Frankfurt office, says this approach is not part of a grand design. Instead, it follows the model established when Clearys opened in Paris in 1949. Clearys, he says, provides a one-stop shop for clients. For instance, “German IPOs will almost inevitably have a US component, and we can provide a seamless, integrated team to handle the deal. This is what clients appreciate,” he says.
“The difference between our strategy and almost all other firms that want to practise local law is that we are where we are because of our own internal efforts,” he says, rejecting recent rumours that Clearys was in merger talks with German firm Punders.
The firms argue that the main forces behind these different strategies are the demands and nature of a firm's clients. “It's a case of following clients into the market where they are expanding,” says Thomas Benz, London managing partner of Morgan Lewis & Bockius. Morgans is aiming to provide a full service from its offices in London, Frankfurt and Brussels.
Stephen Fiamma, London managing partner of Jones Day Reavis & Pogue, says most of his firm's work is for US issuers of securities, where there is a listing on the US exchanges. US firms which concentrate on US law “would be offering advice on the ground in Europe on transactions into the US capital markets”, he says.
“But our practice has been in the other direction, because we represent the consumers of capital, making investments in Europe out of the US.” Structured finance work has also grown in London and Paris. “All those areas require a broad array of local lawyers,” he says.
A firm may vary its approach from country to country, depending on the business it does there. Skadden Arps Slate Meagher & Flom has a mixture of English and US lawyers in London, with mainly local lawyers in Paris and Moscow practising local law. But, according to London managing partner Bruce Buck, the Frankfurt office does not practise German law.
“Our work there is largely international capital markets work with German and Austrian companies in cross-border transactions, and we don't see the need to block up with German lawyers,” he says.
Buck says Skadden's strategy is not to have a strategy. “We may even have a resistance to growth,” he says. He says that rather than opening a host of offices and going full service, the firm is looking to build on its existing practice areas such as M&A, project finance and capital markets work.
Dryander believes the market will compel US firms to begin practising local law. “The US investment banks are dominating cross-border transactions in Europe and those firms that want to practise local law have opportunities.
“But you can no longer add that much value if you just do US law. Those firms' growth will not keep up with the growth of the legal market generally and they will be increasingly niche players in limited areas that have a US component,” he says.
Firms without Clearys' tradition of organic growth in Europe will not be able simply to set up offices using existing staff, says Hildebrandt. “The interest is in acquiring local lawyers or merging with local firms. The idea of opening an office and sending in Americans won't pay any more, because you have to have local expertise and legal skills.”
Whatever their strategy, a number of firms are looking to expand.
White & Case is looking to open an office in Germany by the end of this year, while Jones Day is looking closely at Madrid and Milan. Buck says Skadden has “looked at and will continue to look at Milan, Madrid and Stockholm, but there is going to have to be a very persuasive reason to do something there”.
Weil Gotshal & Manges is examining various options which it hopes will come to fruition in the next year or so. The firm is looking at possible mergers and lateral hires in Paris and Frankfurt, and is also considering Italy and Spain.
The firm believes that it is its existing strategy as a US firm which is driving these moves. Akiko Mikumo, head of the US practice at Weil Gotshal's London office, says the firm has been approached because it is a US firm. “They don't want to hook up with a London firm, because they need access to US clients and the US market. They don't need access to English clients.”
There is a spectrum of strategies for US firms looking to take on Europe, but some analysts believe that they have been slow to settle on a business plan and follow it through. “They need to focus on Europe and they will,” says Hildebrandt. “But they are coming to the party pretty late.”
There is one other option. Rogers & Wells will vote next month on whether to merge with UK giant Clifford Chance. If, as seems likely, the merger goes ahead and the firms find a way to unite different cultures and pay structures, iron out conflicts and convince 80-plus partners that the union is a good idea, then hey presto – they will have a firm which straddles the transatlantic divide.