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With a more-is-better philosophy, national practices increasingly want to lock arms with foreign law firms in mergers to create a global presence. If only it were that simple. Whether troubles arise from differences in management styles or pay structures, recruitment practices or even dress codes, transcontinental mergers can have super-sized portions of the problems found in domestic mergers. “You’re trying to merge two cultures, and it’s crucial that the cultures mesh,” says Paul Reinstein, co-managing partner of New York-based Fried, Frank, Harris, Shriver & Jacobson. His firm attempted to merge with London-based Ashurst last year, but the deal collapsed due to what the firms said were “too many uncertainties” in trying to create a single entity. In the last two years, several of the most recognized firms in the country have merged with foreign practices, and still more are either in talks to join forces with foreign firms or have tried to do so. In hindsight, Reinstein points to the double trouble Fried, Frank faced in its potential merger. On the one hand, the deal involved a proposed merger of two like-sized firms. Immediately, Reinstein says, the problem of “who’s in charge” emerged. In addition, differences in work culture and laws also presented difficulties. Fried, Frank has since expanded its London practice to 29, including its recent hiring of six attorneys from Ashurst. Reinstein remains reflective about last year’s merger experience. “It was very worthwhile to have at least tried to see if we could do such a transaction,” he says. International mergers seem to be the inevitable consequence of expansion. First, firms want a bicoastal presence. Then, they seek offices in key mid-America cities. And finally, law firms will merge to spread their reach across oceans. Kirkpatrick & Lockhart has followed such a strategy. In 1993, the Pittsburgh-based firm opened a New York office, which now has about 90 attorneys. A few years later, it set up shop on the West Coast, with offices in Los Angeles and San Francisco. Dallas followed, and now London. Last month, 750-attorney Kirkpatrick & Lockhart announced its merger with Nicholson Graham & Jones, a London firm with 135 lawyers. The creation of Kirkpatrick & Lockhart Nicholson Graham came after “sufficient patience” in attempting to penetrate the London market, says Peter Kalis, managing partner of the firm. Establishing a national platform was critical before looking overseas, Kalis explains. Even then, the firm took a slow and methodical approach, despite a sense of urgency he felt from competitors eyeing the London market. “You look around and wonder, ‘Won’t someone ask me to the prom?’ ” He adds, however, that deals that move too fast without the essentials in place are doomed. “When you’ve got the right merger partner, there’s no problem that’s insurmountable. When you’ve got the wrong partner, every little molehill becomes Mount Everest,” he says. Recent history shows more firms positioning themselves for a global practice. In January 2002, Chicago-based Mayer Brown & Platt merged with London’s Rowe & Maw to create a 1,200-lawyer firm. That deal followed an unsuccessful merger attempt between the London firm and White & Case. Last year, Jones Day completed its merger with London’s Gouldens, which established a 200-lawyer London office for Jones Day. Also last year, Fried Frank broke off its talks with Ashurst. Besides the Kirkpatrick & Lockhart transaction this year, Piper Rudnick has announced that it is negotiating with London-based DLA for a possible merger, while simultaneously working on a merger with West Coast firm Gray Cary Ware & Freidenrich. The combined firm would employ more than 3,100 attorneys. A LOGICAL TREND The movement beyond U.S. borders is a logical step, considering law firm consolidation at home. This year alone marks a notable trend in mergers. Washington’s Wilmer, Cutler & Pickering merged with Boston-based Hale and Dorr to form a firm with more than 1,000 attorneys. Orrick Herrington & Sutcliffe, with about 675 lawyers, is in talks with 239-attorney Swidler Berlin Shereff Friedman, based in Washington. Boston-based Ropes & Gray reportedly is negotiating with Fish & Neave in New York. Also recently, New York-based Coudert Brothers broke off plans with Squire, Sanders & Dempsey, which has a significant foreign presence. While these stateside mergers have their own sets of challenges, international mergers can be trickier for a number of reasons, says Joel Henning, vice president and general counsel of Hildebrandt International, a consultancy that advises law firms on mergers. Some of the hurdles include differing rules on conflicts of interests, marketing styles, recruitment and pay differentials. But it is the first and most basic question that often trips up U.S. firms seeking an international merger, Henning says. They need to take a hard look at whether a merger with an overseas firm makes good business sense, he explains. In other words, does the U.S. firm have sufficient clientele to support a substantial overseas presence, or is it banking on a strategy of “if you build it, they will come.” If the latter is the case, the expansion likely is based on flawed logic. “Frankly, a whole lot of mergers don’t make sense,” he says. In Kirkpatrick’s case, Kalis says it had a strong foundation of clients, including several Fortune 100 companies, with plenty of business in London. And its history of business there guided the firm in its choice of which London practice to merge with. Long before selecting Nicholson Graham & Jones, Kirkpatrick & Lockhart began surveying its partners who had collaborated with London attorneys on a variety of legal matters to learn about their experiences and ultimately to determine which firms matched its goals. Kalis also met with several London firms to see which ones would be good companions, a decision the firm ultimately took about two years to make. “Brick by brick, we assembled a learning curve not only about the practice of law in London but also about our own practice,” he says. Kalis adds that the specter of a failed deal, and the accompanying media attention such a collapse might garner, was motivation for getting it right the first time. But getting it right may be getting more difficult. The number of London firms ripe for mergers is becoming smaller and smaller, says Colin Fergus, with Fergus Partnership Consulting in New York. That dwindling list of eligible partners may be driving the urgency among U.S. firms wanting to go global. Fergus, who describes London as a seller’s market, says that firms there have a wide variety of New York suitors from which to choose. Henning concurs, saying that much of the “low-hanging fruit” in London’s market has been picked off. But, at the same time, he says, second-, third- and fourth-tier U.S. firms are eager to make a move. Mayer Brown & Platt’s merger with London’s Rowe & Maw in January 2002 was the result of a “simultaneous interest,” says Mayer Brown Managing Partner Debora de Hoyos. She says that mergers in Paris and Germany preceded the deal in London, which gave Rowe & Maw attorneys a chance to see how the firm functioned overseas. De Hoyos says she knew it was a good match when common clients said the firms would work well together. Despite the sense of urgency, experts warn firms to proceed with caution, given the potential pitfalls. One such pitfall relates to differing compensation systems. U.K. firms traditionally have followed lockstep plans, which meant that much of their attorneys’ compensation related to how long they had been with the firm and their tenure as a partner. That system contrasts with the so-called eat-what-you-kill approach, a form of merit pay in which attorneys’ compensation correlates with how much business they bring in. Critics of the U.S. concept say that it undermines working as a team; critics of the lockstep approach say it squelches individual ambition. Clifford Chance’s foray into the U.S. legal market highlighted the clash in compensation modes when it merged with New York’s Roger & Wells in 2000. The British firm’s adherence to a lockstep system did not sit well with its U.S. attorneys and, according to some observers, led to the departure of many attorneys acquired through the merger. But as cross-pollination over the Atlantic continues to increase, firms may be softening their approaches on both sides of the ocean. Kalis calls the lockstep versus merit pay debate a “false dilemma.” He says that big U.S. firms in a position to look for overseas partners eschew the eat-what-you-kill approach, for the most part. While they may have rainmakers on their rosters, the work they bring in typically requires the skills of a legal team to handle it. If firms have adopted a strict eat-what-you-kill compensation method, the team will “vote with their feet,” he says. While Kirkpatrick & Lockhart Nicholson Graham will “transition into” a merit pay system over the next two years, the firm has decided to remain flexible for now, Kalis says. He explains that, although billable rates are higher at U.K. firms, attorneys there tend to record fewer hours for the same amount of work. “From the client’s standpoint, it comes out the same place.” He goes on to say that the two firms made a conscious effort to “not get all hung up about what is a detail” in the negotiations. Although some grousing between would-be partners over marketing strategies or firm names is expected, cultural compatibility must be at the heart of the deal, Henning says. THE CULTURE FACTOR But the more the cultures differ, the more difficult a merger can become. Kalis, with Kirkpatrick & Lockhart, notes that merging with a London firm is a relatively easy fit compared with mergers that involve countries with differing languages or in unions where East meets West. He says that even though the Nicholson Graham transaction dealt with two sovereign nations, it nevertheless involved two firms that speak English whose practices are based on the same system of common law. But more mergers with fewer common traits are likely. Already, firms are bulking up practices in China in light of sweeping changes to its financial markets made this year. Modifications in government regulations toward a more open economy have spawned China practices for several firms, including Heller Ehrman White & McAuliffe and Sidley Austin Brown & Wood. Revisions in Japan’s banking system also have firms scouting out more activity. Milbank, Tweed, Hadley & McCoy of New York announced that senior partner Gary Wigmore relocated in September from Singapore to Tokyo to head that office. The firm’s press release announcing the move said it was an opportunity to “further its relationships with the Japanese corporate market.” Henning predicts that as economies in Asia continue to improve, the laws there will become more accommodating to foreign investment and, therefore, to American law firms. Leigh Jones is a reporter for The National Law Journal , the ALM newspaper where this article originally appeared.

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