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The impending merger of Washington, D.C.’s Wilmer Cutler & Pickering with Boston-based Hale and Dorr will catapult the combined entity into the tier of largest law firms in the United States. Announced last month and expected to take effect at the end of May, the merger grabbed headlines. But from our perspective, as the leaders of McDermott, Will & Emery’s D.C. and Boston offices, the more significant story remains the transformation of the legal marketplace. Practice diversity and geographic footprint are becoming strategic imperatives for law firms in today’s global economy. Major corporate law firms are increasingly deciding they must merge, expand, or be acquired if they wish to remain competitive in the market for global legal services. The Wilmer-Hale merger, which will create a 1,000-lawyer firm, underscores this accelerating trend in the legal marketplace. Even venerable and strong local and regional firms must have a national or global strategy if they are to prosper and grow in a rapidly consolidating legal marketplace. Yet choosing the right path is tricky business. Growth options include mergers, acquisitions, and more tactical expansion. Mergers are the fastest vehicle for creating a global presence, allowing firms to dramatically increase their size and their revenue overnight. Any merger-created firm, however, is then faced with the daunting task of melding the two partnerships into a single entity. Good matchmaking requires not only complementary firm cultures, but also a synergistic meshing of law practices. Some law firm mergers have foundered when partners could not find enough common ground to make the union work. The challenges range from deciding which retirement plan the merged firm will use to choosing the management structure. Some firms have a two-tier partnership; others, a single-tier. At one firm, practice group leaders may focus on market and business development; at the other, their responsibilities may include budget and recruitment. Even issues such as from which law schools will the firm recruit reflect cultural differences and have institutional ramifications. To make a merger successful, every aspect of change has to be considered and discussed. The process requires a great deal of thought and sensitivity. Creating a common unifying relationship between the two merged firms is one priority, but addressing common clients is fundamental. This requires decisions as to who manages the client relationship and even who issues the bills. There also is the ubiquitous problem of client conflicts. While the major conflicts are vetted and understood prior to any merger, less obvious problems often turn up later. A newly merged firm may find it has many clients in a particular industry with fundamentally different domestic or global priorities. A U.S. manufacturer may object to a firm’s foreign clients who import or export in their market. So where are good merger partners to be found? Given the emphasis today on global practice, Washington firms are attractive, providing expertise on U.S. regulatory and legislative issues. These same types of regulatory issues are now surfacing in the European Union, Japan, and China. The D.C. market has already been a prime target for such matchmaking, with a handful of big pairings finalized in recent years. These include McKenna & Cuneo with Atlanta’s Long Aldridge & Norman; Howrey & Simon with Houston’s Arnold, White & Durkee; and Piper Rudnick (itself the product of a merger between Baltimore’s Piper & Marbury and Rudnick & Wolfe) with Verner, Liipfert, Bernhard, McPherson and Hand. Outside of Washington, good candidates include regional firms with strong specialized practices. Hale and Dorr, known for its focus on New England technology companies, is a good example. In New York, capital markets firms have thus far deemed it unnecessary to look seriously at mergers. Yet other New York law groups have opted for tactical expansion. Weil, Gotshal & Manges, for example, now has 17 U.S. offices, having recently opened an office in Boston and expanded its presence in the District through high-profile lateral hires. Still, many are watching the New York market for further consolidation, reflecting the current belief that any major global law firm must have offices in Washington, New York, and London, as well as perhaps Brussels. Our firm, McDermott, Will & Emery, recently opened an office in Brussels, bringing the total number of offices firmwide to 15. A SLOWER APPROACH Tactical expansion provides an alternate route, with many law firms choosing to grow their practices either by acquiring local firms or practices in key cities or by opening their own offices. This gradual growth approach avoids the culture clash of mergers, offering several advantages including the ability to modulate the pace of growth while preserving firm culture. Not every firm will (or should) opt for growth. There will always be a market for specialized, service-oriented local and regional firms. But midsize general-purpose firms will likely find they will no longer be able to compete for top-tier corporate clients who want international representation. As international firms proliferate, regional firms will emphasize their geographic focus and their particular areas of practice expertise. Even the very largest of global firms will not be in a position to offer every service or cover every geographic market for every client. The spread of cross-country and intercontinental law firm mergers in some ways has mirrored the consolidation that swept the banking and accounting industries. But while cost savings drove consolidation in those industries, clients are the driving force of the move toward mega-firm law practices. Corporate clients with global businesses no longer wish to seek out separate legal representation in every market where they do business. Instead, they want firms that can represent them across the United States and in Europe and Asia, providing expertise in a broad range of legal issues, either directly or by referral relationships. This creates an incentive as well as a competitive imperative for law firms to provide clients with both the geographic scope and the depth of expertise that comes with scale. Individual lawyers have become keenly aware of the importance of scale. In Boston, for example, law firms that offer a national and international platform have become increasingly successful in attracting attorneys. When two of the oldest firms in Boston — Hill & Barlow and Hutchins, Wheeler & Dittmar — disbanded in 2002, the majority of partners from those venerable firms chose to join either national or super-regional firms. One reason: These more-diversified firms provided them a broader platform from which to grow their practices. Multilocation firms also can offer career advantages to young attorneys, allowing them to gain broader experience and expertise. Firms will need to respond to this reality or risk losing valued partners and practices to the increasing number of international law firms in major U.S. legal markets. Size alone, however, does not necessarily constitute success or profits. Growth for growth’s sake has not proven to be a viable model. Instead, expansion needs to be client driven. Ultimately, the only reason for growth must be providing broader, deeper, and additional practice skills to support existing clients or to attract new ones. Law firm growth also is a product of business and economic cycles. Geographic and sector diversity can be an important economic hedge in today’s volatile markets, insulating firms during downward economic cycles. A firm built on a specialized practice such as biotechnology will rise and fall on the fortunes of that sector, while a national or international firm will have other strong practice areas to buffer the impact if a single sector falters. Scale also blunts the impact of the loss of clients through industry mergers. In Europe, the consolidation model is already well in place. The majority of leading law firms in Germany, for example, have already either affiliated or merged into U.K. or U.S. firms. Other alliances through mergers, acquisitions, or partnerships have taken place in England and Italy. The movement is just beginning in Asia, a market that has begun to attract U.S. and global firms because of the increasing client activity in China and other countries in the region. Law firms need to recognize, however, that expansion into foreign markets brings with it additional risks. An international merger or expansion is a far more complex matrix than such growth within the United States. Indeed, differences between law firms in New York and Los Angeles pale when compared with those that exist between firms in different countries. Looking ahead, it is likely that a dozen or two large national and international firms will eventually dominate the top-tier legal market, offering a wide array of legal services in multiple markets. They will set the tone for the industry, and firms with 1,000-plus lawyers will become increasingly common. Regional firms will survive by carving out specialty niches or providing a geographical focus. This evolution is inevitable as both client needs and competition are driving the change. Timothy J. Waters is the partner in charge of the D.C. office and Doron F. Ezickson is the partner in charge of the Boston office of the international law firm of McDermott, Will & Emery.

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