Legal Business Blogs

Comment: NRF’s New York merger – the trade-offs of federalism

Barely into 2017 and it has already been an eventful year for verein-based law firms, with King & Wood Mallesons meeting a painful end in Europe while, in happy contrast, Norton Rose Fulbright (NRF) has just secured its second substantive US merger in the shape of Chadbourne & Parke.

The deal hands NRF 300 lawyers and a major upgrade to its Manhattan practice, which it certainly wanted and needed. Given the federal structure of NRF, the deal is primarily a merger within its US business, marrying the legacy Fulbright & Jaworski to a firm with complementary strengths across energy, projects and finance, nicely combining Fulbright’s Texas heartlands with Chadbourne’s New York base.

If the practice mix is clearly the ‘absolute no-brainer’ cited by NRF chief Peter Martyr (pictured), in performance terms the omens are more mixed. Like Fulbright, Chadbourne had in recent years struggled to establish itself amid a less hospitable market, while revenues have dwindled to under $250m. The firm had been casting around for a merger for a while, having been previously linked to a range of firms including Pillsbury Winthrop Shaw Pittman, Baker McKenzie, DLA Piper and Hogan Lovells.

There has also been a run of notable departures in recent months for Chadbourne and the week that the merger was confirmed, NRF saw a nine-partner exodus to its far more profitable Texas rival Baker Botts, including some of NRF’s most prominent US lawyers. Also, is it churlish to note that the wider run of post-Lehman global legal mergers have not had a great track record?

While the merger does help to forge a 4,000-lawyer giant, it will do nothing to silence the critics of such multi-partnership unions. If the core argument remains that these institutions tend to default to uncoordinated sprawl with little shared interest between them, the recent trajectory of NRF and its peers has done little to challenge this notion.

True, where there is regular cross-border capital flows to build practice links and a natural cultural affinity, which NRF for example is regarded to have between its European, Australian and South African arms, such operational challenges can be met. But the claim that the model makes no difference to the behaviour of the institution or the services that clients ultimately receive has not been borne out by events.

In the case of NRF and Chadbourne, the European partners voted only on absorbing the small City branch, not the merger itself. The mood in London is positive but relatively detached – this is seen as a US merger and US issue. In established NRF style, the deal was hurried through with little debate.

Does any of this navel-gazing matter? On the basis of achieving an industry-focused play, where you desire huge global reach and depth of resource but not necessarily sky-high profitability or the hungriest partner culture, probably not. The multi-partnership law firm is a pragmatic way to get there quickly and potentially build a new band of professional services giants.

But if you want to thrive in some key competitive hub markets and some of the most competitive practice lines, then, the answer appears to be: yes, it matters a lot. It is also yet to be proven that such firms have enough juice to truly establish themselves in the global elite of 2030, whatever the nominal revenue figure says. Providing everyone is realistic about those trade-offs, then we are all consenting adults.

Read more on the firm in: ‘On the bus – Inside the Norton Rose Fulbright masterplan’