The Tale of Two (Putative) Mergers

If "quadrifecta" is a word, then I suppose we
have
one, although some of the four firms constituting it are,
in the immortal words of Orwell’s Animal
Farm, "more
equal than others." 

Reed Smith is reported to
be eyeing an acquisition of Chicago’s Wildman Harrold, while
Squire Sanders is looking
at Miami’s Steel Hector.   The potential Reed
Smith deal was earlier rumored,
but unless I missed something this is the first writeup of
the Squire Saunders acquisition.   So much for the
facts.  What does this mean, if anything?

To begin with, the two purported deals are completely
unalike.  The Squire-Sanders/Steel-Hector move is an
opportunistic grab by Squire-Saunders of the equivalent of
a drowning man; Steel Hector is variously described as:

• "suffering financial setbacks;"
• "plagued by partner defections;" and
• subject to "much speculation about its ability to stay
  afloat;"

after an overly aggressive expansion into Latin America in
the 1990’s, combined with taking on as partners former ambassadors
and judges with more marquee than market value, blew the lid
on expenses.  As luck would have it, key clients more
or less simultaneously decided that would be a good time to
implode, themselves.  The managing partner who had led
these initiatives, Joseph Klock, was deposed and the firm’s
ranking in South Florida has dropped from second to fifth.

Let’s back up:  "Opportunistic grab?"   "Drowning
man?"  Am I being too harsh?  I demur:  I
am only describing the harshness of the marketplace, a bedrock
reality which, no matter how loudly some may keen that "we
are a profession, not a business," is something you have no
ability to opt out of.   Steel Hector, of course,
understands this; they were reportedly trying to recast themselves
as a "boutique" before Squire Sanders appeared on the horizon—perhaps
the only realistic alternative option.

Although these comments were offered in the context of Reed
Smith, they apply with equal if not greater force to the corner
Steel Hector finds itself in (emphasis supplied):

"You clearly see a squeeze
in the 100- to 300-[lawyer] range,” said Lee Miller,
co-chief executive of DLA Piper Rudnick Gray Cary, a 2,700
lawyer international firm.
Five years ago, Miller’s firm was known as Rudnick & Wolfe, a 355-lawyer
Chicago practice that depended heavily on real estate work.  But,
Miller said, the firm had to become more global and diverse in order to
meet the changing needs of its clients.
“The law firm world mirrors the corporate marketplace. It’s as simple as
that,” Miller said."

The Reed Smith deal—which smells to me less
conclusively "done" than Squire Sander’s—presents
an altogether sunnier landscape.   Reed Smith has
been, since the turn of this Century, on a mission to grow
beyond its Pittsburgh roots (not, in itself, a half-bad idea,
given the fall from economic prominence of that city).   The
presumed Wildman-Harrold acquisition would be merely the latest
acquisition-from-strength in that strategically calculated
and professionally executed long march. 

Michael Pollack, Reed Smith’s Chief Strategy Officer (full
disclosure:  I have met Michael and consider him a friend,
although I have not discussed this post with him), summarizes
the rationale for the putative deal with all the relaxed and
considered perspective of someone doing a deal because he wants
to, not because he has to:

Pollack said Chicago would be a logical next step
for Reed Smith being that the firm has the East and West coasts
pretty well covered.

“There is a lot of space between Pittsburgh and San Francisco,” Pollack
said. “It doesn’t mean we have to fill it. It’s just a question of opportunity.
Chicago is a great legal market with a lot of companies based there. We
have a lot of clients there and in the upper Midwest that might give us
more work if we were strategically closer to them. That’s why we did the
Crosby deal.”

[The "Crosby deal" was Reed Smith’s 2002 acquisition of Oakland-based
Crosby-Heafey, which instantly made Reed Smith a player in California.]   Interestingly,
Michael also notes that "it’s not our style" to enter a market
where the firm can’t be relevant.  And "relevant" means?  "100
lawyers."  In their New
York office, Reed Smith just
happens to have nearly that number.  What a coincidence.

The moral of the machinations announced today?  (a)  The
marketplace is harsh.  (b)  You can deal with that
by becoming global and matching your corporate clients’ geographic
footprints.  (c)  Or you can deal with that by going
boutique, or regional-powerhouse, or alternative-fee innovator.  (d)  What
you cannot do is not deal with it.