Why do law firms merge?
The fact is, I wonder sometimes myself.
More seriously, there is typically an array of stated and unstated reasons, among them:
- Growth for the sake of growth: Inadvisable. Size alone doesn’t guarantee anything particularly desirable, and may guarantee some things undesirable, such as increased managerial complexity, more difficulty achieving the holy grail of the "one-firm firm," more partners who are relative strangers to one another, and increased odds on serious conflicts.
- Merging to achieve a stronger geographical footprint: This can make great sense, so long as you understand that not all cities or regions are created equal, and that some are far more strategic than others. If your firm views itself as a financial services powerhouse, for example, you need to be in New York, London, and Hong Kong. If you’re into high tech, San Francisco and/or Silicon Valley are probably non-negotiable. Even without specialties—say you’re a general practice firm with a full range of transactional and dispute resolution capabilities—you still want to be where the clients are likely to be. So if you’re US-based, you need to cover New York, California, Washington, DC (for the regulatory dimension), and perhaps another couple of centers of gravity of economic activity such as Illinois or Texas.
- Merging to add practice capacity: Also a potentially astute strategy, depending on how the hole you’re trying to fill fits in among your core practice areas. The increasing proportion of value in 21st Century goods and services represented by intellectual property largely explains, to my mind, why we’ve seen so many IP boutiques acquired or dismembered over the past decade or so—and why it may be increasingly difficult for the few left to survive as stand-alone entities. It’s difficult to bill yourself as a full-service firm in either the transactional or the dispute resolution space without an integral IP capability.
- Merging from a defensive crouch, or to paper over a recent black eye, or to project a superficial image of dynamism: All lousy ideas, needless to say. Nevertheless, such mergers happen on a regular basis, with the firm that constitutes damaged goods asserting its high levels of energy and forward momentum rather too insistently. A recent high-profile merger here in New York comes to mind.
Then there are the mergers where you have to admire the clarity of the vision.
Here I’m referring to the K&L/Gates—Hughes & Luce merger, which by final vote of the two partnerships will go effective January 1st. (Back in July, merger discussions were revealed.) Here’s coverage in the Dallas Morning News, the Texas Lawyer, The Lawyer, Legal Week, and The National Law Journal. For the record, the combination of the 149-lawyer Hughes & Luce with the roughly 1,400 lawyer K&L/Gates will have nearly 1,550 lawyers in 23 offices: 18 across the US plus Beijing, Berlin, Hong Kong, London and Taipei.
And what is the rationale?
For K&L/Gates, it’s to establish a serious presence in Texas (over 200 lawyers in Dallas, Fort Worth, and Austin, as contrasted to just 35 lawyers in Dallas today). Texas may logically be viewed as the third important center of economic activity in the United States, after New York and California, with a growing number of Fortune 1000 companies headquartered there—and no longer limited to the petroleum or energy industries.
For Hughes & Luce, it’s to gain access to the three-continent platform K&L/Gates brings to the party: The US, Europe, and China. Peter Kalis, chairman and global managing partner of K&L, pointedly noted that "Texas is a strategic market that is underserved by firms with credible, [international] platforms," which Edward Coultas, managing partner of Hughes & Luce, echoed from the other side of the table by observing that "It removes any question of a platform issue, and we really like this firm, the people, the quality of lawyers. It’s the expertise we will have at our fingertips." The "platform issue," indeed! Isn’t that fingering rather precisely the ceiling on Hughes & Luce’s growth as a Texas-native firm?
In short, a bilateral win—on paper.
The ever-gnarly issue of cultural compatibility remains, of course, on which the only sensible observation to be made at this point is that time will tell.
But for what it’s worth, speaking as someone rather familiar with the K&L culture, I think the auguries are promising. Hughes & Luce dates only to 1973 when four lawyers with an average each of just five years of experience broke away from an established Dallas firm to fill what they perceived as a gap in the marketplace: Focused, responsive, high-quality legal work for the Texas business community, then in a period of particularly rapid growth. The firm’s website speaks unabashedly about their "history [being] one of innovation," and adds:
"While the coming decade will present significant challenges to the legal profession and to Hughes & Luce, we are poised to accept the challenge. The firm’s history has made dealing with change the norm, not the exception. The firm remains confident that the combination of talent, energy, seasoned judgment and institutional know-how will continue to produce ‘first-ever’ results."
If I have read K&L remotely right, this sounds like a terrific natural fit.
And if it turns out not to be?
At least they’re doing it for the right reasons.
