MERGERS and acquisitions are rattling along at quite a pace among transatlantic law firms – unlike at the corporate clients they service, many of which are still finding the M&A game a little hard going at the moment, not least of course Prudential.
The latest legal mega-deal repays a closer look. The City’s Denton Wilde Sapte last week announced its intention to tie-up with Chicago-based Sonnenschein Nath & Rosenthal, creating a global practice boasting no fewer than 1,400 lawyers and revenues of almost £500m.
This move comes after last month’s creation of Hogan Lovells, formed after the merger of London’s Lovells and Washington’s Hogan & Hartson, which became the world’s ninth-biggest law firm with revenues of almost £1.4bn. City law firm SJ Berwin is also mulling a transatlantic merger and is in talks with Proskauer Rose, based in Boston.
Denton Wilde Sapte chief executive Howard Morris, who has led the firm since 2004, hopes that this is the final leg of a six-year overhaul of the 21st biggest law firm in the City.
“We hope this merger will give a bit of a jolt to prospective clients, but also hope it will have the same effect internally,” says a quietly spoken but engaging Morris, who in sitting in his spacious second floor office in the firm’s Fleet Place head office, a stone’s throw away from the Old Bailey.
He candidly adds: “This merger is about building revenues, rather than cost cutting. Our firm isn’t where we want it to be. It a major cause of frustration that our service is the equal of many firms that are more profitable than us.”
Morris continues: “We need to win more quality work, and we should expect to win these kinds of instructions. We will tell clients that together we are able to do a much wider range of work that they might once have placed elsewhere. It might be a cliché at times, but US firms work harder and are hungry. That is something we can learn from.”
The impetus behind all of these legal mergers is that even medium-sized companies increasingly have overseas units that need a legal service.
Dentons last year posted revenues of £167.5m, down one per cent, with its two biggest units – banking, and energy and infrastructure – accounting for 38 per cent and 21 per cent of sales respectively. Partner profits rose 20 per cent to £360,000 after it recovered from a big dip the year before due to the financial crisis.
Sonnenschein, the 59th largest law firm in the US, in 2009 posted revenues of £328m (almost twice as high as Dentons) and partner profits down three per cent at £541,000. Unsurprisingly, some critics suggest Dentons may struggle to maintain its voice in a merger with a firm that is twice as large and is one-and-a-half times more profitable than the City firm. But Morris hopes this merger will follow the pattern of his firm’s earlier tie-up: it was born from a 2000 merger between Denton Hall and Wilde Sapte.
He says: “That merger worked tremendously well. In a matter of months it didn’t matter where you came from, it was about making the new business work. We didn’t think we had to balance internal committees, we just picked the best people. We hope the same happens again this time around.”
However, Dentons has lost ground since its merger a decade ago, which left it ranked as the 11th largest City law firm at the time. Over this period the firm lost out on big instructions to rivals and became complacent and unwieldy. Since Morris took over he has cut around 100 jobs, including a number of unproductive partners.
Morris says: “We have become more intolerant of mediocrity and unwilling to compromise. We have addressed redundancies and underperformance in the partnership. I don’t expect to have to revisit this.”
However, Morris wants to get back to the lucrative instructions it won in the early part of the century such as WorldCom, Federal Mogul and RSL.
Whether things run smoothly or turn sour, Morris plans to see the merger through. His second three-year stint was due to end next February but the Dentons board have asked him, and chairman Martin Kitchen, to stay at their posts for a further three years.
The Dentons and the Sonnenscheins negotiating teams should at the very least be congratulated for their absolute discretion, in the incredibly gossipy legal industry world. They managed to keep talks, which opened last summer and intensified over the last three months, secret.
The first Dentons’ own partners knew about it was by email at 3.00pm on 26 May; the rest of the firm were told 20 minutes later. Morris says: “We wanted to keep the talks in confidence until we had something solid to give the partners. We did not want it to be a case of Chinese whispers.”
He adds: “Overall, the initial response has been strongly positive. But there are a lot of questions people want answered. I am realistic enough to know that this move will involve change, and I expect people to find change difficult.”
The proposed tie-up will go before the partners of both firms for approval on 9 June and, if they vote in favour, the new firm will begin operating as SNR Dentons in September.
The merger will see Dentons gain access to the US market, while Sonnenschein, which outside the US only has two small offices in Brussels and Zurich, will get a presence in London as well as Dentons’ sizeable network in the Middle East and Russia.
Under the deal Morris and the current Sonnenschein chairman Elliot Portnoy will become joint chief executives, while Dentons’ Kitchen and Sonnenschein’s business and regulation head Joe Andrew will become joint chairmen.
Like the Hogan Lovells merger, this tie-up will also operate under a Swiss Verein structure that will allow both firms to keep their own accounts and separate bonus pools.
Morris says the enlarged firm plans to anchor its integration around a number of the key banking clients they share, such as HSBC, RBS Securities, JP Morgan Chase and Citibank. He says: “We will cluster around our clients giving them a good service, and a one-firm feel. We want to get to a quality of service that turns clients on, and we feel integration will come as a consequence of that.”
Unlike most City heads Morris is not a one-firm lawyer. He spent the first eight years after college as a criminal barrister, then joined City rival Allen & Overy for five years before settling at Dentons.
But a barrister’s life was never for him. He says: “The bar was then a very restricted place. I didn’t have a private income. I went to a secondary modern school. Maybe I was a bit chippy, but I wanted to do something else.”
Such a tough, meritocratic outlook on life is exactly what the British part of the new firm will need when the merger goes through. London needs its law firms to be more global; lawyers across the City will be watching this deal and how it is executed even more closely than usual.
CV | HOWARD MORRIS
Work: 1980 – 1986: practising barrister; 1986 – 1991: joined Allen & Overy as an associate specialising in financial markets; 1991: joined Denton Wilde Sapte as an assistant lawyer; 1993: became a partner; 2003: became head of Dentons’ largest unit, banking; 2004 elected chief executive for three years; 2007: re-elected as chief executive
Education: 1975 – 1978: Queen Mary College, University of London, read law; 1978 - 1979: Inns of Court School of Law
Family: Married with two grown up children
Lives: Barbican in the City