In comes a new peer group to the Legal Business 100. Thanks to a flurry of transatlantic marriages over the past 18 months, it is no longer appropriate to sit the likes of DLA Piper, Hogan Lovells, Norton Rose, SNR Denton and Squire Sanders Hammonds in their old peer groups.
Take DLA Piper. Historically the firm has never been judged on the basis of its global business in the LB100 because the firm operates a Swiss verein structure with two separate profit pools and, up until now, it probably wasn’t appropriate to do so. Of this group DLA was the forerunner in terms of US ambition when it moved into the market, pulling off a three-way deal with Chicago firm Piper Rudnick and Californian firm Gray Cary Ware & Freidenrich in 2005.
But enter stage right Norton Rose, Hogan Lovells, SNR Denton and Squire Sanders Hammonds, which have done well to rapidly expand overseas recently through the use of the verein, and the argument against judging DLA as a single entity doesn’t seem reasonable anymore.
Of the group, Norton Rose has made the biggest strides. In the past 21 months, the firm has merged with counterparts in Australia then Canada and South Africa, at the same time reporting an impressive 59% rise in revenue for the 2010/11 year.
The firm is likely to feature even higher in the LB100 once merger partners Ogilvy Renault and South Africa’s Deneys Reitz have a chance to add their piece to the pie. Ogilvy Renault is likely to add £200m to Norton Rose’s revenue, while Deneys Reitz will contribute £50m to enlarge the group’s top line, potentially creating a business worth significantly over £700m. Norton Rose’s ambition should be applauded at a time when many of its contemporaries are quite happy to sit on their hands but if all this global manoeuvring does not lead to the holy grail of a US deal then it would be for nothing. While that deal may not come in the next 12 months group chief executive Peter Martyr and his management team will surely be hoping to seal a relatively speedy agreement within the next two years.
After completing its first year as a combined entity, Hogan Lovells entered the exclusive £1bn club with fee income of £1.1bn. The merger, which went live in May 2010, has created a firm with over 2,600 lawyers and more than 30 offices. It has rightly set the bar in terms of the law firm merger and it is difficult to see if there are similar deals out there.
‘The response we’ve had from clients evidences the business case for the merger, and the fact that we’re now in a very different place in the market also helps,’ suggests David Harris, Hogan Lovells’ co-chief executive. ‘There is a high level of ambition in the firm and a strong sense that we are progressing well.’
Hogan Lovells kickstarted the current trend of transatlantic consolidation swiftly followed by Denton Wilde Sapte merging with Chicago’s Sonnenschein Nath & Rosenthal, and Hammonds joining forces with Squire, Sanders & Dempsey.
‘The response we’ve had from clients evidences the business case for the merger, and the fact that we’re now in a very different place in the market also helps.’ – David Harris, Hogan Lovells
‘I don’t think there is any doubt that there will be more consolidation,’ explains Deloitte’s Jeremy Black. ‘Firms have been successful through the boom times but now many firms are finding it difficult. If their clients are global, they may need to be global too.’
It’s still early days for SNR Denton. Although the two firms officially joined up this time last year, any idea of how the combined business will look is likely to start appearing next year. Already the firms say they will have a combined revenue of £445.3m. That looks to be a fair prediction but it is a far from stable ship.
SNR Denton’s Europe, Middle East and Africa (EMEA) practice continues to struggle. For the 2010/11 year, it posted an 8% drop in revenue to £154.4m, while the firm’s net income fell dramatically from £31m in 2010/11 to £19m this year, marking a 38% drop. This news can’t be good for the firm’s 85 EMEA equity partners.
In July, EMEA chief executive Matthew Jones said the performance was linked to the tough climate, which ‘did not meet the economic aspirations of our EMEA business’.
Meanwhile, legacy firm Hammonds, which traditionally fell into the Major UK category in the LB100 with DLA Piper, has parachuted into this exclusive group.
The merger with Squire Sanders went live at the start of the year and is already paying dividends. ‘We performed pretty well in what has been a year of significant change and investment in bringing together the two legacy firms,’ comments European managing partner Peter Crossley. ‘It’s a solid platform from which to build the combined business.’
Legacy Hammonds saw revenue for the 2010/11 year remain flat at £118m, while PEP dropped 3% to £348,000. Of the firm’s financial performance, Crossley says: ‘This year we have seen growth from our corporate, litigation and pensions teams. Our offices in France and Germany have performed strongly in 2011 and we see this momentum continuing across Continental Europe.’ One thing is certain, this group will change in the coming years.
‘In order to be in a position to service suppliers outside of the UK, [a merger] is the way going forward. We will see more international tie-ups in the future,’ says one senior partner.
Where will the next glut of transatlantic deals come from? There is a cadre of firms who look like they need to do a deal to keep up with the competition. Although Ashurst and Simmons & Simmons are on more steady ground than 12 months ago, both would be greatly enhanced by a credible US tie-up. The sense is that Simmons is likely to make that step more readily than Ashurst, and its unsuccessful talks with Mayer Brown earlier this year are illustrative of that. Similarly the collapse of merger talks between SJ Berwin and Proskauer Rose does not appear to have dented the UK firm’s US ambitions.
Members of the legal community are already hedging their bets on further consolidation in the global market. This is, really, only the beginning. LB