Law Firms' Mergers

yanerlim

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Sep 4, 2018
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There are many different kinds of firm mergers/relationships we see lately.
Just to name a few, there's the "best friends network" strategy, the fully financial integration, Swiss Vereins etc...

I was wondering what are the differences and nuances of these mergers (eg: challenges or benefits) and what makes one better than the other? If anyone can share their opinion, that'll be great!
 

AzanAshai

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A quick overview as I understand it:

1. Best Friend's Group

This is used most notably by Slaughter and May. The firm maintains strategic connections with firms like BonelliErede (Italy), Bredin Prat (France) and others to refer work to on applicable jurisdictional matters. It's an advantage in that it leaves out the risk and liabilities of opening an office in any of those jurisdictions yet loses out on having that physical presence in those areas. Below is a neat article on partner Andrew McClean's perspective on this distinct international strategy:

http://thegatewayonline.com/law/where-to-work/slaughter-and-may-international-career

2. Alliances

I don't know much about this, but Linklaters has an alliance with Australian firm Allens - this was done primarily to better service clients in Asia. Both firms remain financially independent but share a joint brand Linklaters - Allens (you can google this and see it for yourself!). It is advantageous as it offers a bit more overlap than the Best Friend's Group with the shared branding.

3. Swiss Vereins

Norton Rose Fulbright is an excellent example of this. This tactic allows for NRF to expand rapidly without taking on the liabilities of its other offices. So the liabilities of NRF UK is separate to those of NRF Canada. There is question of conflicts of interest between different offices and also there tends to be less cultural cohesion as a result since the offices are managed separately.

4. Mergers

Legacy litigation outfit Fulbright & Janowski merging with UK transactional heavyweight Norton Rose is a good example of this. The hope is by merging, the firms can become greater than the sum of their parts. @Jaysen I'm sure you can shed much more light on this. Disadvantages include the logistics of the actual merger itself. Organizing management, adjusting partner compensation and integrating two differing cultures can be some major hurdles in achieving a successful merger. When done right, firms can bolster credibility in practice areas, increase profitability and market dominance.

5. Full Financial Integration

An example of this would be with the recent merger between legacy firms Bryan Cave and Berwin Leighton Paisner. Newly formed Bryan Cave Leighton Paisner (BCLP) combined two organizations into one firm and sharing one profit pool. The biggest pro is the fact this creates a symmetrical internal structure and a more cohesive culture. Disadvantages include liabilities being shared and like with all change in law firms, those changed will be met with dissent from those who don't want the integration to go through. This can potentially result in teams or partners leaving for other firms.

Article on BCLP merger here: https://www.law.com/americanlawyer/...aisner-brings-together-two-leaders-two-firms/
 
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Jaysen

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    Funnily enough, @Jaysen delivered a great lecture on this at Norton Rose's London office for an SEO Training Day in June, he may have the slides for this from his presentation?

    Hi Azan,

    Well remembered. I didn't realise you were there!

    Here is the slide:

    upload_2018-9-12_22-11-23.png

    I've attached the slides for the whole presentation in case it's useful. I'll also try to dig out my notes, although you've answered it perfectly @AzanAshai
     

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    AzanAshai

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    Hi Azan,

    Well remembered. I didn't realise you were there!

    Here is the slide:

    View attachment 140

    I've attached the slides for the whole presentation in case it's useful. I'll also try to dig out my notes, although you've answered it perfectly @AzanAshai

    Yeah, that entire presentation was super helpful! Thanks for attaching.
     

    Jaysen

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    Thanks for the slides Jaysen, I would be really interested to read your accompanying notes if you locate them :)

    Found them but they aren't very helpful -- I used the slides as guidance for most of my presentation, so much of the notes won't make sense/they don't cover most of it.

    Feel free to ask if you want me to cover anything in the slides.

    What am I going to cover?
    • Why does it matter?
    • The City
    • How law firms fit into the City
    • The business of law firms
    • Inside a law firm
    • Why do lawyers do?
    • Working on a deal
    • Law firm strategies
    • Global trends
    • The future
    • The Corporate Law Academy
    Why commercial law? Why does it matter?
    • Do you really want to be a lawyer?
    • Help you justify and perform well at interview
    • Because most of what being a lawyer is business
    • Help you understand what kind of firm you’d be interested in
    Why is the City important?
    • Why England finance
    • Historical
    • English law
    • Presumption – protection
    • Safety/anti corruption
    • Commercial courts

    To understand what commercial law firms do and where lawyers fit into that picture,
    • The market is all about connecting those that need money with those that have it.
    • Who has money?. So pension funds, insurance companies, banks, hedge funds.
    • Who needs money? Individuals, Companies, governments – borrow to make up deficit.
    • To connect these two, you have banks.
    • Why?
    • Players
    • Exchanges
    • Intermediaries

    ·Banking – can be broken down simply, you are acting for the various lenders. Lenders want to give out loans, they want to increase their profits and want to limit their risk i.e. the borrower defaulting. Profits come from knowing they will get their money back, acting against the risk that a company will not default. This is where lawyers come in, to assess the financial capacity of the obligor and whether it is a worthy measure. And even if the company does default, to know that they have security over an asset by having a charge over say the land.

    Why do firms merge or acquire? (this was adapted from the M&A guide)

    I’ll use law firms as an example. They often merge, or adopt structures called Swiss vereins – which allow firms to share branding and marketing, but keep their finances separate.

    In the legal world, it can be hard to find organic growth, or organic growth can be very slow. Clients like to shop around, which can make it hard to retain existing business. It’s competitive – other law firms can poach valuable partners, and bring their clients with them. And whilst entering new markets is attractive; it’s expensive, often subject to heavy-regulation and means challenging the existing players in that market.

    So, consolidation can help law firms – squeezed between lower-cost entrants and the global players – to compete. A combined firm is bigger, less vulnerable to external shocks, and has access to more lawyers and clients. The three-way merger between Olswang, Nabarro and CMS is a good example of this. The year before its merger, Olswang had revenues below £100m and a 77% fall in operating profit. Now, under the trading name, CMS UK, it’s one of the largest UK law firms by lawyer headcount and revenue.

    Mergers speed-up entry into new markets. If Dentons had opened an office in China, it would have been difficult. It’s a different market. Chinese clients, especially state-owned enterprises are less likely to pay high legal fees. Local expertise and personal relationships play a bigger role. There’s regulation – non-Chinese lawyers can’t practice Chinese mainland law, and there’s competition from established Chinese law firms. Instead, Dentons merged with Dacheng – a firm with decades of experience and an established reputation in the Chinese market. And now, Dentons can serve clients investing in China and Chinese clients looking for outbound work. A market position that’s worth billions.

    Mergers can also create synergies. Firms can save costs by closing duplicate offices and laying off support staff. A combined firm generates higher revenues and that means more options; it can often lower prices to win work or negotiate better terms for its investments.

    But that’s not to say mergers are necessary. Many law firms have grown just fine by organic means. Some attract new clients by developing their sector expertise. For example, Bird & Bird is renown for its intellectual property team and Withers for private client work. Some firms achieve a global reach by opening up offices. Others, like Slaughter & May, operate best friend groups, and partner with law firms to serve their international clients.

    It’s true that vereins have led DLA Piper and Baker Mckenzie to develop very strong brands. But, collaboration hasn’t always worked out. Internal problems plagued the merger of Dewey & LeBoeuf. Bingham McCutchen couldn’t keep up with costs. And most recently, King & Wood Mallesons made the mistake of merging with an already troubled SJ Berwin. So, only time will tell whether Dentons’ 31 combinations will be a success.

    Things to know right now

    o GDPR

    o Legal tech

    o Trump tariffs

    o Economy right now
     

    Jaysen

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    There are many different kinds of firm mergers/relationships we see lately.
    Just to name a few, there's the "best friends network" strategy, the fully financial integration, Swiss Vereins etc...

    I was wondering what are the differences and nuances of these mergers (eg: challenges or benefits) and what makes one better than the other? If anyone can share their opinion, that'll be great!

    Here is what I said about this question:

    Law firm combinations are on a spectrum. On one side, you’ve got alliances (Linklaters and Allens) and best friend networks (Slaughters) where firms refer work, clients and maybe marketing initiatives. In the middle, you’ve got Swiss vereins, where firms operate under one united brand but they keep their businesses financially separate. Finally, you’ve got full financial integration. So that’s what BLP are doing and what Hogan Lovells did in 2010. It’s a full integration because the firms share one profit pool and also have a single system to divide up the profits.

    Full financial integration doesn’t happen very often. It’s not easy for firms to work out profit sharing and partner remuneration. That’s especially true when trying to merge with a US firm because they often pay partners using a different system (performance-based rather than a lockstep).

    You also need a firm with similar levels of profitability – often that’s a problem for top UK firms because the NY elite tend to be much more profitable. BLP ‘s profits per equity partner (“PEP”) is not far from Bryan Cave so that’s not much of an issue. That was not the case with Greenberg Taurig who had higher PEP. If they went for the full financial merger then BLP would have had to restructure – probably remove equity partners or put more of them on a fixed salary.

    The decision to opt for a merger rather than a Swiss verein (NRF/DLA) or a company limited by guarantee (Eversheds/Wragge) is also a big move. A lot of firms go for the latter two because you get to tell clients you’re a united firm but you don’t have to worry about sharing revenue or liabilities. It’s easier to gloss over issues of integration because you’re not sharing the same profit pool. And you’re not as vulnerable to currency fluctuations or big tax fees.

    But BLP went for the full merger. I’m not sure what compensation system Bryan Cave has but they probably need to spend some time resolving any disparities in partner remuneration. Hogan Lovells got rid of Lovells’ lockstep system so they might do the same here. If it works you can really say you have a united firm. You share the same clients, culture and values. Fee earners are encouraged to share work because if the whole firm does well then everyone benefits. The compensation system is the same so that limits tension about partner remuneration. And clients get to see a seamless service on both sides of the Atlantic (and everywhere else). Swiss vereins don’t have that level of integration; you’ve got to work hard to incentivise partners to refer work and clients because they’re not sharing all the rewards.
     
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    Jaysen

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    Would you say that a firm's structure (e.g. Swiss verein/ full intergration) affects a trainee's work or is it more of a long-term consideration when deciding whether to stay at a firm?

    Yes, it affects the international scope of the work you do. If a firm has managed to expand quickly by adopting a Swiss verein structure, you'll be exposed to a large number of jurisdictions/international lawyers. You may have new opportunities for secondments/knowledge sharing -- especially if it's a full integration.
     
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    KZM

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    Jul 25, 2019
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    Would you say Mills and Reeves use an alliance strategy? All the information i come across seems to be them partnering with other la firms? Also is there a website that readily has this kind of information available please?
     

    Jaysen

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    Would you say Mills and Reeves use an alliance strategy? All the information i come across seems to be them partnering with other la firms? Also is there a website that readily has this kind of information available please?

    I can't say I know much about the firm but from The Lawyer:

    "Further Manchester expansion came in 2013 through the bolt-on of George Davies, while in 2017 the firm bulked up significantly in London through a merger with Maxwell Winward, which had a strong real estate and construction practice.

    International expansion has not happened so far but Mills & Reeve has referral relationships with French firm FIDAL and Graf von Westphalen in Germany."

    I don't know whether these are official alliances but yes they seem to rely on relationships rather than opening up offices.
     

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