Journalistic wisdom, or maybe it’s just engaging newsroom lore passed down, has it that one anecdote is a story but three anecdotes constitute a trend.
If so, Dear Reader, we have a trend:
Mayer Brown has been in secret merger talks with Simmons & Simmons as the Chicago-headquartered firm looks at ways of bolstering its dwindling presence on the UK side of the Atlantic.
It is understood that the two firms held talks, which have now been aborted, over the possibility of creating a £1bn global business that would have gifted Mayer Brown more UK and European coverage and extended Simmons’ reach in Asia.
From The Lawyer, June 7.
This of course on the heels of
- The formal closing of the Hogan Lovells merger
- The announcement of the Sonnenschein/Dentons deal, and
- The putative deal between Proskauer and SJ Berwin
Of what precisely does this “trend” consist?
First of all, what it resolutely does not consist of: It does not presage the epic future merger wave, long predicted and perhaps never to be consummated, of the Magic Circle with New York’s white shoe or bulge bracket firms. (Not to be oblique about it: This does not foretell Freshfields/Sullivan & Cromwell or Allen & Overy/Simpson Thacher.)
But it does tell a story that’s beginning to be compelling: The Silver Circle, or the chasing pack, or UK firms ##10 through 30 or so are attractive merger candidate for US firms outside the New York gilded elite-and vice versa. Why?
Logistical/practical reasons and strategic/global reasons.
The logistical/practical reasons are that people have figured out that you don’t have to do a real, complete merger. You can steal a page from the DLA playbook (or, now, the Hogan Lovells and announced Sonnenschein/Dentons book) and not really combine your financial books across the US and UK practices. This accomplishes several neat tricks at once:
- You don’t have to integrate cash (US) and accrual (UK) accounting systems;
- You don’t have to really integrate currencies, and you can hope that partner compensation and other material currency-dependent metrics simply even out over time-one side of the pond wins some years and the other side wins other years;
- You don’t have to synchronize calendar-year (US, generally) fiscal years with March 31st (UK, generally) fiscal years; and
- You can manage the whole kit and caboodle through a “Swiss verein” type holding structure.
Never underestimate the power of the simple do-ability of a deal to affect lawyers’ willingness to pursue it.
- Whatever the relative cyclical and secular ups and downs of London and New York, it will remain the case as far as the eye can see that London will be the financial capital of Europe and reference point for the Mideast and New York will remain financial capital of North and even South America, and both will remain reference points for Asia and BRIC.
- On the order of 12 of the top 20 major metropolitan area legal markets in the world are US cities; if you pretend to be a global law firm without covering at least some of those markets, you are, if not kidding yourself, surely missing out on some major revenue streams.
- The UK firms traditionally have stronger Asian networks than US firms could ever have hopes of aspiring to. If you share the Asia-centric perspective that only Asia and the US really “matter,” globally, as economies, you need to be in Asia. Strongly, on the ground, with history.
- What about the EU, you’re asking? Sickly as it is at the moment, with the existential fate of the euro still in the balance, it remains a huge economic engine and it’s not going anywhere. Here again the UK firms have traditionally cultivated much stronger networks from Paris and Madrid to Warsaw and Moscow, and these are extremely valuable assets which are extremely costly to build from scratch. The history of “greenfield” office developments has not, by and large, been pretty.
Now, are any of these strategic and logistical reasons actually new? No, of course not. The Swiss verein structure, for example, has been around in accounting firm land for decades. And it’s hardly news that UK firms have historically stronger roots across the EU and Asia than US arrivistes, nor that UK firms are nowhere to be seen in America outside a few highly challenging outposts on the island of Manhattan.
What’s new is that people are suddenly realizing how all these ingredients might fit together.
And they do fit. The upshot being that many people think the starter’s pistol may have fired.
Now, the risk is two-fold. We have the Scylla of firms, on both sides of the pond, that ought by all rights to seize this opportunity for a beneficial combination, but who won’t, courtesy of inertia or cowardice or simple inattention. And we have the Charybdis of firms that will think they see a window about to slam shut and will make ill-conceived deals which they will seal in haste and repent at leisure, resulting in mangled fingers at best and limb amputations at worst.
Of course, you and your firm are too smart to fall into either camp.