Make Me a Match ILLUSTRATION by JIM FRAZIER

Make Me a Match ILLUSTRATION BY JIM FRAZIER

How to pull off a successful law firm merger by Leslie A. Gordon

Mergers have become an increasingly popular option for law firms seeking to expand their national or global reaching new markets or adding practice groups that footprint and to weather the changing legal climate. clients are demanding. For other firms, that might be But determining whether a merger is the right option recruiting higher-caliber lawyers or creating efficiency. takes more than due diligence. It requires extreme soul- “A law firm merger needs to further a strategic searching and a laser focus on the long game. To this end, imperative that the firm arrived at in a clear-thinking Mayer Brown’s playbook could be considered a case study way, and that imperative should not just be growth,” for a successful merger. Jillson says. “If you don’t approach a merger correctly, you In the last 11 years, the firm has undergone three can just end up adding more weight to the firm in a way mergers on three continents, transforming it from a that doesn’t further any strategy.” Firm leaders should Chicago-based firm with just 3 percent of its attorneys determine what they’re trying to accomplish “before the outside the U.S. to a global firm with nearly half its mating dance starts,” he says. lawyers in foreign offices. The firm’s exponential growth Achieving practice group, industry or geographic was driven by clients’ increasingly global needs, says Paul synergy—“filling in some holes”—bodes well for a strong Theiss, the firm’s Chicago-based chairman. merger, says Peter Zeughauser, a management consultant The mergers are working just as the firm intended: based in Newport Beach, California. “Nobody can hire Recently, Mayer Brown’s outpost in Hong Kong you if they’ve never heard of you,” Zeughauser explains. collaborated on a client matter with a new lawyer in the “Data supports the notion that the more breadth and Frankfurt, Germany, office. And it’s worked out for the depth a firm has, the better known you will be. A firm’s attorneys, too: Mayer Brown experienced a 47 percent size, relative to market, strengthens the brand. You need growth in net income and a 35 percent increase in profits to be big relative to your market and ‘market’ is practice, per partner between 2012 and 2015. industry or geography.” So a top IP firm in Los Angeles Broad-scale mergers are not a new business strategy. doesn’t need to be 1,000 lawyers, for example, but it Back in 1987, for example, legal powerhouse Clifford may need to be 100 lawyers. “A merger can help you Chance was born when London firms Coward Chance build breadth and depth more efficiently because it’ll be and Clifford Turner combined. Later, in 2000, Clifford quicker and cheaper than building through lateral hires.” Chance completed a three-party international merger When Bradley Arant Rose & White, a 250-lawyer with Germany’s Pünder Volhard Weber & Axster and multi-office Alabama-based firm, merged with midsize New York’s venerable Rogers & Wells. Similarly, in Nashville, Tennessee, firm Boult, Cummings, Conners 2001, white-shoe U.S. firm Sidley & Austin merged with & Berry in 2009, there were “two overriding rationales,” 400-lawyer Brown & Wood. says Beau Grenier, chairman of Bradley Arant Boult While not a novel tactic, mergers have become much Cummings, now a 500-lawyer firm. “The way the more common since the Great Recession, according to industry was moving, having a more geographically Andrew Jillson, a Dallas-based law firm consultant. diverse firm better positioned us in the market to serve “Mergers are a way that many firms are reacting to and attract clients. So the business case to becoming upheaval in the legal market,” Jillson says. “So there’s a super-regional firm was compelling. Also, specific been a steady pace upwards.” synergies between the two firms made that business case According to consulting firm Altman Weil, which keeps even stronger.” In particular, one legacy firm had health a running log of law firm acquisitions on its MergerLine care clients but not many health care lawyers, whereas website, 91 law firm combinations were announced in the other legacy firm had the opposite, Grenier says. the U.S. in 2015, representing the highest annual total Since the merger, revenue is up about 65 percent. Also up recorded in the 10 years MergerLine has been compiling are profits per equity partner and the number of client data. Along with a record number matters imported and exported among the firm’s now of combinations, 2015 also saw the largest-ever law firm nine offices. merger when 2,600-lawyer Dentons combined with a Like Mayer Brown and Bradley, other firms have suc- 4,000-lawyer Chinese firm, Dacheng Law Offices. In cessfully completed mergers in recent years, including another significant match, DLA Piper acquired firms in Arnold & Porter Kaye Scholer, Bryan Cave, Hogan both Sweden and Canada last fall. Lovells, Reed Smith, Sidley Austin and Wilmer Cutler Pickering Hale and Dorr, to name a few. THE MERGER STRATEGY Despite this record of successful industry mergers, While increasingly popular, merging is not a foolproof firms must pursue acquisitions with “a high level of business strategy. There are plenty of cautionary tales— discipline,” Jillson advises. Firm leadership must define mergers that failed altogether, resulting in distress or criteria that will guide them and then remain faithful disaster, or suffered client or lawyer attrition—including to that criteria through the process. A merger, adds firm those of Bingham McCutchen and Dewey & LeBoeuf. management consultant John Olmstead in St. Louis, “is Indeed, experts agree that a merger should not be a very serious thing.” It must not be “a knee-jerk decision an endgame for its own sake. Instead, it should serve that’s all about the short term, all about money.” a broader business goal. For some firms, that might be Experts offer specific tips for the process of merging and client base (including size and industry) industry) and (including size base client and matters) bet-the-company vs. (commoditized of level sophistication the as such variables strategy. and culture to operations and clients finances, from everything includes That metrics.” compatibility the scrub “really to is advice primary out door. the heading and practices up their packing got experience they’ve because lawyers same those lose easily can attorneys of aslew lateral acquired have recently that Firms flag: red potential other.the Another to out-negotiate tries that or merge oneto firm desperate seem that include firms signs Danger away.’ walk to but need we ” deal, agood like looked say, “You able be to says. to need ‘This decision,” Jillson abad you make that pursuit of the thrill the in “You invested so get can’t when necessary. end discussions to discipline first.” merger the about excited people get Let bit. alittle discussion name the off Put My advice? second. be to wants firm’s new No the about name. one discussion infamous the “Plus,he there’s says. always way,” the in get egos “Partners’ combination. a new behind get to unable them making firm, legacy the to attachment emotional extreme have an can Partners adds. Hildebrandt reasons, for more personal fail talks merger &Sutcliffe. Herrington Orrick and Shaw Pittman Winthrop Pillsbury between adoomed merger example an as citing says, Hildebrandt out iron conflicts, long” to too waited firms the because are don’t anywhere go other. that mergers “Most each with compete that clients represent firms two the which in conflicts business particularly for conflicts, early very look must firms foremost, and First breakers. deal potential resolve to work quickly should on amerger, leaders says Hildebrandt revolt.” may large at problem. long, you’re If partners the too quiet [tothere firm] wider the timing or youhave a You put balance. have it to outit’s adelicate that, After leaders. group practice key then and committees executive include two the we “Later, says. Hildebrandt chairs,” firm law “Usually, two it’s the me and just small. firms two the between meetings preliminary keeping suggests consultant, law firm based aNew Jersey- Hildebrandt, Brad interest. best in its is the approach decides once afirm When it comes to practice compatibility, compatibility, practice to it comes When underway, Jillson’s are discussions Once thehave also must law firms said, That sometimes overcome, are Even conflicts if months and months But spending before creates the right incentives.” right creates the It apartnership. as together Brown, fall “we and rise PAUL THEISS At Mayer FISCAL PEACE FISCAL nurtured? and established relationships client How are the andother more defense? firm plaintiffs a labor? one Is primarily represents other the while management represent typically one up. firm line Does must Those are two different kinds of worlds.” kinds different two are Those together. this in we’re all versus you kill money but howThere’s it works. what eat pay themselves—it’s the not just partners how determine Also, sales. from concept prospect’ your a problem. It’s ‘qualify the be hour, $200 could an another that and an hour $450 charges one If firm deals. alot of down breaks “Compensation says. Olmstead firms, the between or two meeting first the in addressed should be they that important so are compatibility We’re silos.” not small-group excellence. professional and service client for We responsibility incentives. share right the It creates apartnership. as together fall end year. That’sthe of the and key—we rise at pool profit asingle in share “Partners world,” the around he explains. partnership economic one “as operates firm His Theiss. Mayer Brown’s to merger, according post- firm aunified in results borders income? guaranteed one at firm partners some Are years? two or every annually evaluated compensation Is system? tiered a other the and system aformula use one firm Does of adeal. facet acritical is course, of Compensation, leases. office and rates billing should scrutinize leaders firm manipulated, easily are some argue which points, data revenue-per-lawyer and profits-per-partner standard the to addition points.” In sticky be can “These adds. Hildebrandt culture, its structure—reveals capital and distributions spending, sheet—including debt, A firm’s balance Regarding operations, a merger can can amerger operations, Regarding compensation and structure Rate across system compensation A uniform essential. also is compatibility Financial

PHOTOGRAPH BY WAYNE SLEZAK LAW FIRM MERGERS & ACQUISITIONS TOTALS: 2007-2016 100

91 88 85 80 82

60 60 60 60 53

40 39

0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: Altman Weil MergerLine. Not Ready for a Merger? Law firm networks offer an expansion alternative

or law firms eager to gain geographic diversity, Hope Krebs suggests an Fapproach she believes is far less risky than merging: a law firm network. “With a global merger, there are so many hurdles you have to overcome in each jurisdiction,” says Krebs of Philadelphia, who co-chairs the international practice group at Duane Morris. “If you’re going to expend those resources, you’d better make sure you know what you’re getting. With a network, you know the quality of the lawyers. In a network, although resources are consumed, it’s nothing like a merger.” Krebs serves as chair of Multilaw, a global network of independent law firms that links clients with attorneys internationally. Member firms pool resources and refer client matters, forming an alliance that serves as a distinct alternative to merging with a law firm in another country. Founded in 1990 and headquartered in London, Multilaw boasts 8,500 attorneys from 80-plus member firms in more than 150 cities. Eight U.S. firms make up Multilaw’s American contingent. “We’re friendly competitors,” Krebs says. Due diligence and quality control mechanisms are the hallmark of Multilaw, according to Krebs. “This is not a Yellow Pages. These are trusted advisers who can service the needs of your clients in many countries,” she says. Multilaw firms undergo a rigorous recruiting and invitation process, resulting in a known legal quantity that surpasses what you might get by sending a random SOS for local counsel to lawyer friends, Krebs explains. “You’re not going to just get someone you met once at a conference. Our firms are the go-to firms in their jurisdictions. You’d be

PHOTOGRAPH BY DAVID FONDA provide distinct opportunities to establish new best practices. Rather than simply continuing with one of the two firms’ hard-pressed to find a better firm in their areas. Lawyers operations, the combined are also incredibly responsive to Multilaw clients. You get firm should seize the chance to adopt new approaches that a certain level of attention and quality.” are an improvement for both, Once members, firms are subjected to an “intense according to experts. To that appraisal system.” Every three years, on a rolling basis, firms end, Hildebrandt recommends are re-evaluated “to make sure we’re all still in alignment moving forward “as if starting a because we’re only as strong as our weakest link.” new law firm.” Everything from Member firms may turn to Multilaw colleagues for a cybersecurity to governance should be re-evaluated and discrete matter or for a full-blown request for proposal. possibly restructured. Each member firm has a “contact partner,” who serves Experts agree that the most as a bridge into and out of that firm. As Duane Morris’ important area to ensure contact partner, Krebs receives inbound or outbound compatibility is culture. Both Multilaw requests by email or phone at least once a day, firms “better make sure they really understand the two sometimes in the middle of the night. cultures and whether they fit,” A member firm may have its own international offices Bradley chairman Grenier but still uses Multilaw “to complete the world,” Krebs advises. “There are always notes. “Multilaw firms recognize that you can’t have an cultural differences between two office everywhere.” At the time of the Journal’s interview institutions—you can’t avoid that. with Krebs, Multilaw had a pending RFP that spanned 72 But you do need a fundamental understanding” about critical countries. elements such as governance, Once the relationship is established, the firm doing work-life balance and “how you the work typically bills the other firm’s client directly. treat your people.” In Bradley’s Not surprisingly, business development is another huge case, the two firms spent 18 benefit of an international network. Krebs recounts months talking before the merger closed in early 2009. “By that a recent meeting between one of her Duane Morris time, we knew each other really partners and a potential client. The partner asked the well. It was the lowest point of general counsel what kept him up at night. The GC the economic downturn and the answered: “All the compliance work we have in the two firms got to go through it foreign countries where we have subsidiaries.” Krebs’ together,” Grenier says. “It was partner responded confidently: “I think we can help.” Not tough for everybody but a great bonding experience.” only did the firm get the client at least in part because Even though a merger may of the Multilaw connection, but that engagement make economic sense, talks generated additional real estate and employment work may still fail because law for the sister Multilaw firms originally hired to do the firms are “very tribal in their compliance work. culture,” Zeughauser says. “As much as they’re the same, Krebs is eager to dispel misconceptions about law they’re different and differences firm networks. “It’s not just a emerge during merger talks.” HOPE KREBS bunch of little firms cobbled Culture includes everything “Multilaw firms together,” she says. “It’s a from workload expectations to recognize that strategic network. For my the client service commitment firm, it’s a way to complete our to staff employment policies. you can’t have an It’s personalities, philosophies office everywhere. geographic footprint. It makes and lifestyles. In talking with ... It’s a strategic us bigger than the biggest with potential merger partners, “start network.” low risk.” with the people and the culture first,” Olmstead advises. “Many PHOTOGRAPH BY DAVID FONDA mergers fail because the wrong people got married.” TEAM POWER sometimes be harder on administrative staff Once a merger is underway, a transition than on the lawyers. committee composed of lawyers and staff Once complete, a merger’s success may from both firms should gather input from be evaluated at least in part by post- rank-and-file lawyers and employees. An transaction attrition, Jillson says. But integration plan with a timetable should Hildebrandt notes that “regrettable and be developed as early as possible to avoid nonregrettable departures” should be stumbling through decisions by default. distinguished. Some departures “may always “That can sound counterintuitive,” Jillson have been the plan,” either due to conflicts notes. “Many firm leaders think: ‘Let’s get or previous underperformance, Hildebrandt the deal done and we’ll deal with integration explains. “Both firms may have already baked later.’ But it’s smart to be thinking early about in those adjustments.” how the firms will be integrated. You must In addition to attrition, indications of dedicate a lot of time post-closing—at least as a problematic merger include weakening

“There’s a whole psychology around how people respond to change. It’s called change management. People feel a certain sense of loss. We know a lot more about that in hindsight.” — Beau Grenier

much as before—establishing processes and fi-nancial performance or the loss of major procedures. You can’t just flip a switch.” clients. But Zeughauser cautions that a In Mayer Brown’s case, it became merger’s success may not be immediately increasingly apparent with each merger that gauged because it can take as long as five the new partners should be immediately years for everything to shake out. To that end, commingled in client teams and practice firms should be realistic about post-merger leadership. “Just as for lateral hires—it’s economics. “Don’t over-budget revenue in not good enough to say, ‘Here’s your office, the first year,” Hildebrandt advises. “It takes computer and assistant; let us know if you have time. And firms should overestimate merger questions’—the same principle applies to a expenses,” such as technology costs. merger,” Theiss explains. Mayer Brown’s recent Hildebrandt also suggests questioning the Hong Kong-Germany crossover was the fruitful combined firm’s partners about the merger’s result of new lawyers traveling to different success. “Are they making more money? Do they offices to learn about everyone’s expertise and have new clients? Have they achieved a main clients. “That builds internal trust and gives a goal: to broaden and deepen the platform?” superior level of service” to clients. One clear measure of a merger’s success is Indeed, the real work begins after the clients who come to believe the combined firm transaction closes, Grenier adds. “There’s a is better able to service their needs, resulting in whole psychology around how people respond more matters being sent there. “Consummating to change. It’s called change management. a merger is hard work,” Mayer Brown’s Theiss People feel a certain sense of loss. We says. “But that’s actually the easier part. The know a lot more about that in hindsight.” harder part is making it work weeks and Being sensitized to that loss can help with months after” and teaching clients about the “cultural assimilation,” Grenier says. In fact, advantages of a merger. “We explain that preserving too much independence—such as the merger provides them with a very strong keeping the same leaders in the old offices— solution for their complicated problems.” n works against integration. Firm management Leslie A. Gordon, a former lawyer, is a legal should also recognize that mergers can affairs journalist based in San Francisco.