Hogan & Hartson/Lovells?
As amply reported (Legal Week, The National Law Journal, The Lawyer), the firms are in merger talks and, since no one is remotely denying the reports, we can only assume it’s all quite for real.
We’ll get to what we think it means in a moment, but first, to the numbers:
| Hogan & Hartson | Lovells | |
|---|---|---|
| Revenue* |
US $922.5-million
|
US $984.5-million |
| % change Year over Year |
+4.9%
|
+10.9%
|
| PEP |
$1,160,000
|
$932,000
|
| % change Year over Year |
-1.7%
|
-11.3%
|
| Revenue per Lawyer |
$835,000
|
$695,000
|
| Number of partners |
202 equity/494 total
|
370
|
| Number of lawyers |
1,111
|
1,421
|
| Non-home country offices |
14
|
27
|
| Non-home country lawyers |
23%
|
82%
|
| 5-year CAGR of Revenue per Lawyer |
+5%
|
+5%
|
| 5-year CAGR of Profits per Partner |
+9%
|
+8%
|
*All figures in US$, using a conversion ratio of 1.594 $/£.
In addition, cities where both firms have offices are:
- New York
- London
- Hong Kong
- Beijing
- Paris
- Tokyo
- Munich
- Moscow
On a pro forma basis, the combined firm–assuming a complete merger–would have these characteristics:
- Revenue: $1.9-billion
- Number of lawyers: >2,500
- Global rank: Neck and neck with Latham & Watkins and Allen & Overy, all in a horse race for Global Firm #7:
- DLA Piper: $2.26-billion
- Linklaters: $2.23-billion
- Freshfields: $2.21-billion
- Skadden: $2.20-billion
- Baker & McKenzie: $2.19-billion
- Clifford Chance: $2.16-billion
- Latham & Watkins ($1.92-billion), Hogan/Lovells (roughly $1.9-billion), Allen & Overy ($1.88-billion)
Finally, the practice mix would seem at first glance to be highly complementary. Hogan is known especially for its regulatory/government law practices, antitrust, litigation, intellectual property, real estate, and a substantial level of corporate work. Lovells, somewhat unusual for a UK-based firm, also has a relatively robust litigation practice and is less deal-driven than (say) the Magic Circle, as well as having strong real estate, antitrust, and regulatory law capabilities.
So: What does this really mean?
Already the naysayers, of course, are keening about the challenges and the obstacles. To be fair, the commentary has not been uniformly negative, with (for example) Alex Novarese of Legal Week saying that “at first glance, there appears much to commend this union,” but he is quite the exception.
A sampling:
- “Merger-averse Hogan” supposedly reversing field;
- “partner compensation is, of course, a tougher challenge;”
- “transatlantic deals are fiendishly difficult to pull off;” and “transcontinental mergers have a mixed [read: dubious] history;”
- “US/UK deals are notoriously difficult to secure given the challenge of marrying differing partner compensation and accounting models;”
- “it’s not clear what a merger would do for the combined firms’ profitability;” and, of course, the inevitable
- “there could also be conflict over whether control of the combined firm would reside in Washington or London.”
I’m here to tell you that it’s time for us all to just get over ourselves.
So far as I can tell (no insider knowledge here, folks, sorry to report), this deal makes superb sense.
For how many years/decades/centuries have major corporations been doing transatlantic business on a routine basis? And somehow they have been managing to smooth out the differences between the pound sterling and the dollar, the differences between compensation expectations in the US and the UK (not to mention New York and London specifically), the differences between driving on the right and on the left, and of course the grain of truth in the famous quip about being “divided by a common language.”
As for the New York/London divide specifically, we are informed by a UK legal publication that the architects of this deal should be grateful Hogan doesn’t have its roots here in the Empire State: “A conservatively-run practice like Hogan, with a centre of gravity outside the brittle egos of Manhattan, shouldn’t be the hardest American firm to align with a UK practice.” [Note to visitors to the home office of “Adam Smith, Esq.:” Please check your egos at the door; we do.]
Are there challenges? Of course; there are challenges to running each of the firms today, as they stand alone. Would the challenge of running the combination be twice as great? Perhaps, but I doubt it–at least it would decline over time, and in the meantime there would be double the resources to devote to the challenges. Combinations that have far more moving parts than this one (just to pick a current example, Kraft/Cadbury) are pulled off routinely in CorporateLand. Why do we presume market forces end where legal services begin?
More importantly, do you see what’s going on here?
Each of the obligatory reservations stated to the deal–partner compensation, the putative transatlantic “challenge,” whether Washington or London would “win”–is at bottom a rather shameless exercise in navel-gazing.
When I said it’s time for us to “get over ourselves,” this is precisely what I meant. So far, the tenor of discussion about this proposed merger has been–at least when it shifts from pure journalistic reporting to implied or overt opinion–about as sophisticated as sports bar debates. (I am compelled to note one outstanding exception, which I would like to believe serves to prove my rule, namely the thoughtful commentary by Aric Press, “What a Hogan/Lovells Merger Would Mean.”)
This is potentially a transaction that will change a conspicuous portion of the BigLaw landscape globally. Prattle as we may about the “globalization” of the profession, the Global 100 law firms are still (for reasons that have understandable, if archaic, roots in history and regulation-by-jurisdiction) almost shockingly insular, domestically rooted institutions. Of those 100–pop quiz–how many have:
- Over 50% of their lawyers outside their home country? Only 10 (yes, including Lovells, and counting DLA worldwide and DLA international as one firm).
- And of those 10, how many are of US origin? Two, namely White & Case and Baker & McKenzie.
- Between 30 and 45% of their lawyers outside the home country? Again, only 10, with a somewhat more respectable 7 of US origin.
- And below the 30% bar, the pickings get slim indeed, including some heavyweight name brands with surprisingly low numbers. For example? I would argue that if at least 3 out of 4 of your lawyers are in your home country, you’re not yet seriously international. Here are some candidates (not to single these out, just to make a point):
- Sullivan & Cromwell: 22% of lawyers non-US based
- Skadden: 16%
- Sidley Austin: 16%
- Davis Polk: 13%
- Simpson Thacher: 11%
- &c.
The point is simply this: As an industry, we are not nearly as “internationalized” as our clients, and certainly not remotely as global as the premier clients we all aspire to serve.
It sounds to me as though the leadership of Lovells and of Hogan & Hartson are focusing on genuine strategic objectives and not on “who’s on first.”
We all need to grow up, snap out of our self-referential and unappealingly self-regarding reveries, and seriously contemplate what this may portend. And from my perspective, it will all be good. Overdue, but good.
