Author: Alex Novarese and Sofia Lind |
27 May 2010 | 14:17
If imitation is flattery then the newly-launched Hogan Lovells must be feeling well and truly buttered up this week with the news that Denton Wilde Sapte is to merge with Chicago's Sonnenschein Nath & Rosenthal. After all, the deal's structure is a carbon copy of the model used on a larger scale by Hogan Lovells: two profit centres, partnerships and financial years remaining separate with a Swiss Verein over the top, joint chief executives and moves to align but not fully integrate partner remuneration.
As Legal Week remarked last year, the structure of the deal that Hogan Lovells had developed promised a breakthrough in securing the long-predicted, little-realised run of US/UK mergers. The birth of SNR Denton also follows expectations of where these deals will come from, though both firms are a touch under the weight class that has attracted the most attention.
In essence, the focus is on putting top 60 national US practices together with chasing pack City firms - the current merger bid between Proskauer Rose and SJ Berwin being a reasonable example of that dynamic.
Turning to SNR Denton, the question is how the deal looks. Even the charitable would say both Dentons and Sonnenschein have not hit their stride over the last decade, having failed to quite keep pace with their peer group. On most financial benchmarks, Dentons has been the least impressive performer in its division in recent years and, as such, the 2000 tie-up between Wilde Sapte and Denton Hall must be judged a disappointment. What was by some measures the UK's eighth largest legal practice at the time of the union had fallen to 20th in revenue terms by 2009. And while Dentons had shrunk considerably since the 2000 deal, its profits have also substantially lagged rivals, even with this year's 20% jump in PEP to £360,000 (average PEP for a UK top 50 law firm in 2009-10 will almost certainly be well above £500,000). The years following the deal also saw the closure of its Asia network and the break from its European network.
But perhaps the clearest indication that the UK firm has struggled to live up to its potential comes from casting your mind back to the 1990s and the reputation of the legacy Wilde Sapte. This was one of the most respected banking outfits in the City, a practice that developed names like James Johnson and Nick Syson. It was also the firm that came within a whisker of merging with Arthur Andersen in a deal that clearly unnerved the magic circle until the big five accountant walked away at the 11th hour. A credible case could be made that even merely the spectre of the Andersen/Wilde Sapte union was enough to galvanize the magic circle into the revolution that turned the group into genuinely global powers. If you accept that analysis, then Wilde Sapte has been one of the most influential practices in the UK legal market of the last 25 years, even if it failed to benefit from its own vision.
With that legacy, it seems both sad and fitting that the Wilde Sapte name should now disappear. Back in 2000 the idea that a firm of the pedigree of Denton Wilde Sapte would hook up with Sonnenschein - which remains best known in the UK for pulling the plug on its City arm a decade ago - would have seemed unthinkable, but it's time to move on.
So much for the history. How does the deal look now? At the risk of sounding crass, you would have to say: fair enough. All deals carry risk, but in this case damaging the status quo doesn't seem that high a price, whereas a chance to revive two basically sound firms with proud histories is worth taking. I certainly don't subscribe to the view of some that Dentons could have done better than Sonnenschein. Realistically, it couldn't, and it's to its credit that Dentons is not trying to live out former glories.
There will be bumps on the road. An early danger is that the firms' partnerships will not take kindly to being given less than two weeks' notice to vote on the deal. And aside from altering remuneration at both firms there is the issue of widely varying leverage, with Dentons having six lawyers for each equity partner, though the dual profit centre structure takes most of the heat out of that one.
The firms are touting the creation of strong transatlantic practices in financial institutions, disputes, telecoms, outsourcing and energy, while Dentons will look to build upon the US firm's established insurance practice.
If the merger goes through the two firms will operate with the following global sector focus:
- financial institutions and funds
- energy, transport and infrastructure
- real estate, retail and hotels
- technology, media and telecommunications
- health and life sciences
Dentons has some great lawyers and the potential to once again have a strong business. While I wouldn't necessary bet on this outcome, this deal at least gives the firm a shot at regaining that vigour. And you can't ask much more than that.
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