Walker Clark Worldview

The final demise of the British firm Halliwells, reported last week in the on-line edition of The Lawyer, is a good case study in the financial failure of a law firm.  The Lawyer summarized the factors that led to Halliwells’ failure earlier this month.

The failure and breakup of Halliwells is instructive for law firms anywhere that substitute wishful thinking for attentive management of operating costs and deepening debt.  From what I have read about the final days of Halliwells, they seem to me to have been about as orderly as the evacuation of the Titanic, with reports that more than 30 support staff were handed no-notice dismissals, apparently without any redundancy compensation or accrued vacation pay, at the end of the work day at a meeting that not one partner had the courage to attend.  (To be fair and tell the whole story, more than 460 staff found employment in one of the firms that acquired the surviving pieces of the Halliwells practice.)

A new post this morning in The Lawyer provides a glimpse of the “afterlife” for the parts of Halliwells that were acquired by other firms, who have created “firewalls” in the form of separate LLPs to protect the acquiring firms from the liabilities of the former Halliwells partners, as well as to enable a more reasoned pace of integrating the new partners into their firms.

Norman Clark

The recent on-again off-again status of merger talks between Mayer Brown and Simmons and Simmons illustrate how law firm mergers are a lot like baseball.

As I watch the World Cup, I continue to be amazed at how world-class stars take what is basically a simple game and play it at a level of skill and grace that is almost magical.  Football (real football…not the American version) truly is the Beautiful Game.  (As my firm has clients in almost all of the countries in the Round of 16, I will not disclose my allegiances at this time.)

By contrast, baseball is a very difficult game made to look easy by the skills of its best players.

Law firm mergers, if done properly, are more like major league baseball than World Cup football. Although the business case for the merger might seem strong, the details of execution are usually much more difficult — especially at the “major league” level of two firms like Mayer Brown and Simmons and Simmons.  The complexity of merger negotiations and post-merger integration, combined with the intense partner attention and involvement that a successful merger requires, are among the principal reasons why good merger opportunities often fail to be realized. Conversely, most rushed mergers, in our firm’s experience, produce disappointing results at best, and, in many instances, an anti-synergy that leaves the combined firm weaker than the sum of its antecedent parts.

Although I am not privy to all the details, it appears to me that Mayer Brown and Simmons and Simmons are right to take their time with a searching, in-depth, and fully-informed consideration of all aspects of the proposed deal. A successful merger of these two excellent firms could be wonderful to behold, like a triple play in baseball. A sloppy merger could be each firm’s worst disaster, like an own-goal in the 90th minute of the World Cup final.

Norman Clark

For more information about Walker Clark merger services to law firms, click here.

Walker Clark Worldview has been in a state of suspended animation for the past 30 days, while I have been heavily involved in client work, primarily in the Caribbean and South America.  But today we resume…

The Lawyer reports that the merger discussions between New York based Orrick and London based SJ Berwin have broken off, with Orrick becoming at least the third merger candidate recently to decline SJ Berwin overtures. It appears that SJ Berwin’s financials were not to Orrick’s liking.

Trans-Atlantic merger discussions have revived robustly since the start of 2010, and my colleagues at Walker Clark and I expect them to continue, with one or possibly two significant mergers being announced by the end of the year. However, we also notice — and applaud — what appears to us to be a new sense of business prudence.  Great opportunities may be out there, but firms on both sides of the Atlantic are also saying, “Show me the money.”

We advise our clients to think through carefully the business case, when contemplating a merger with another law firm, and to exchange information — under appropriate confidentiality agreements, of course — early in the discussions. Every merger discussion between the firms should produce answers, not just more questions.

Norman Clark

What can law firms expect in 2010? Here are two points to factor into your planning for the new year.

• Most of the world will see economic recovery in 2010. Most Latin American economies will recover to, and surpass, 2008 performance — especially in GDP growth. We also expect to see recovery by the end of the year in every other region of the world. Recovery will be significant and sustainable, even in the United Kingdom and the European Union; although it might not be until 2011 that some national economies see a return to 2007 levels of performance.
• The picture is not as optimistic for the United States, however, where business failures and personal bankruptcies are likely to continue at record levels. Recovery in the U.S. will also be hampered by the dysfunctional economic policies of the Obama government, and its stubborn failure to acknowledge candidly and address honestly the issues that have decayed the foundations of the American economy and the American political system over the past 30 years.

What will this mean for law firms?  The answers will be highly firm-specific and will vary by jurisdiction, law firm specialty, and size.   There are four issues, however, that I am hearing discussed frequently among our clients and professional friends in law firms worldwide:

• Profitability.  Small and midsize corporate and commercial firms in the United States will continue to struggle with profitability issues, particularly on the revenue side.  Cash flow and management of working capital will continue to be problems for many firms.  We also expect to see continued business failures, downsizing, and partner departures, especially in local firms with fewer than 50 lawyers.
• Outsourcing.  There will be a renewed interest in outsourcing of administrative, marketing, and some lawyer functions in order to control costs.  Some of these efforts will work very well; others will be disappointing.
• New players in the international market.  2009 was a year of retrenchment for large international law firms.   In 2010, we expect to see a renewed interest in carefully selected international expansion. Look for some significant international law firm mergers, some of them involving firms that have not previously been considered to be major international players. We also expect to see regional firms, particularly those based outside North America, enter the international market.
• Quality assurance. There will be renewed interest in the quality of client service and in the efficiency of internal client service operations, not only as competitive advantages but also to reduce operating costs.

These are not the only things that we expect to happen in law firms in 2010, but they are interesting examples how progressive law firms are planning their responses to the economics of 2010, as we perceive them now.

Norman Clark

Lovells and the Hogan & Hartson have agreed to a trans-Atlantic “merger of equals” to form one of the ten largest law firms in the world.

This could be a very smart move. Walker Clark’s market research team rates both as solid “second tier” firms in their respective home countries. Can they find the synergy that they will need to climb those last few hundred meters into the first tier of international law firms?

Most commentators rank London-based Lovells ranks just outside the Magic Circle in terms of overall reputation. With respect, we think that Lovells has been under-rated.  In some practice areas, they have capabilities and a reputation that rival those of some of the Magic Circle members. We regard their litigation and dispute resolution practice as one of the top 15 or 20 in the world. If there are any “holes” in their international portfolio, it would probably be in the Americas, particularly in Latin America.

This is where Hogan & Hartson appears to be a good strategic fit. This Washington-based firm is about 2/3 the size of Lovells. They have a similar geographic spread, but, in our opinion, have not been able to develop the “brand name” that Lovells has.  Hogan & Hartson adds an excellent international business practice, particularly in trade, government regulation, and tax.  They could also provide a missing geographic component — Latin America. Hogan & Hartson already has a 10-lawyer office in Caracas, plus a good regional reputation in arbitration, corporate, and energy.

The new firm, Hogan Lovells, will start operations in May 2010, with approximately 2,500 lawyers. Based on 2009 estimates, they should end 2010 as the world’s ninth or tenth largest law firm in terms of fee revenue — somewhere in the range of US$ 1.7 billion to US$ 1.9 billion, we would expect. This will depend to some extent on the ability of the Obama administration to get a genuine economic recovery underway in the United States by the end of 2010, which we sadly do not expect to happen. Nonetheless, the longer-range prospects look very good for Hogan Lovells.

In the interests of full disclosure, I must point out that Walker Clark, LLC, does not have any financial or professional interest in or with either Lovells or Hogan & Hartson.

But we will be very interested to how they pursue what appears to us to be a smart trans-Atlantic strategy.

Norm Clark

National Law Journal has a very interesting piece on-line this morning, “Billing Out of the Box,” by Sheri Qualters.  It describes some of the creative approaches that small and midsize law firms are taking to revising their fee structures to meet clients’ economic realities in hard times.

There are two interesting points that I need to be make:

1. It is not about price competition. It is very significant (and adds a lot of credibility to the piece) that  NLJ  does not prattle on about how small law firms must try to remain competitive by charging the lowest price in the market.  A reasonable fee only keeps your firm in the market.  It does not create competitive advantage.   All it takes to lose the “low price” competitive advantage is for a competitor to charge one dollar less.  Moreover, such a race to the bottom is usually suicidal for small and midsize law firms.
2. This is nothing new. All of the fee structures described in the article have been around since the introduction of “alternative billing” in the 1990s.  My colleagues at Walker Clark, LLC, and I have been advising small and midsize firms on fee structures and pricing for years.  We have helped law firms work with each of the fee structures mentioned in the NLJ article, as well as some that it doesn’t include.  We have also helped them to use flexible fee structures as a component of their marketing strategies.

What NLJ describes is important, but it is not “out of the box.”

To learn more about Walker Clark’s fee structuring  services for small and midsize law firms, send me an e-mail.

Norman Clark

Locke Lord Bissell & Liddell announced over the weekend that more than 30 lawyers from Morgan & Finnegan‘s New York office have decamped to join Locke Lord, effective immediately.  Lock Lord is a Chicago-based firm, with approximately 700 lawyers (now approximately 730) in 11 cities in the United States.  The acquisition more than doubles the size Locke Lord’s New York office and gives them the core for a new San Francisco office, as well.

With approximately 40 lawyers in New York, Washington, and San Francisco, Morgan & Finnegan had long been recognized as one of the better IP boutiques in the U.S., tracing its ancestry back to 1893.   They have had some hard times recently, such as the departure in 2007 of Chris Hughes, who was responsible for about 30% of the firm’s billings.  Hughes went to Cadwalader Wickersham & Taft. 

It appears that Morgan & Finnegan has now gone the way of other well-regarded IP boutiques in the U.S., such as Pennie & Edmonds (acquired by Jones Day) and Fish & Neave (acquired by Ropes & Gray). What remains of Morgan & Finnegan (approximately 10 lawyers) probably no longer has the critical mass to survive.  Significantly (or coincidentally — I don’t know which), Morgan & Finnegan no longer lists any lawyers at its web site.

These events do not necessarily signal the end of the IP boutique as a business model, but they do demonstrate that the competition for IP talent and service delivery capabilities perhaps has become more challenging than the competition for IP clients.

Norman Clark