With Hurricane Sandy and the presidential election dominating last week’s headlines, news of another blockbuster merger didn’t receive the attention that it deserved. Later this month, SNR Denton, Canadian firm Fraser, Milner & Casgrain (FMC), and Paris-based Salans will join forces to create a 2,500-attorney enterprise known as Dentons, assuming that their respective partners approve the deal. This potential combination merits a closer look.
Not So Long Ago
Twenty years ago, Elliott Portnoy graduated from Harvard Law School. In 2002 he joined Sonnenschein, Nath & Rosenthal. Prior to that, he had headed the public policy group of Am Law 200 firm Arent Fox in Washington, D.C.
In June 2006, at age 40, Portnoy became the youngest chairman in Sonnenschein’s history. At the same time, the firm released a new strategic plan that called for it to increase average equity partner profits from $800,000 to $1.4 million by 2008. That didn’t happen.
In 2007 Sonnenschein had 600 lawyers and average partner profits of $915,000, but it hasn’t seen profit numbers that high since. The central components of the firm’s strategy have been the aggressive recruitment of lateral partners and the pruning away of others. In early 2008, 37 lawyers and 87 nonattorney employees received their walking papers. By the end of that year, average partner profits had dropped to $805,000. Of course, the onset of the Great Recession contributed to the decline, but many other firms weathered the storm with much less damage.
Time to Merge
The 2008 drop in average partner profits didn’t seem to affect Sonnenschein’s strategic plan. Aggressive lateral hiring continued, including the addition of 100 lawyers from the failing Thacher, Proffitt & Wood in December 2008. Average partner profits kept dropping—to $780,000 in 2009. The following year brought the ultimate lateral hiring event: a tie-up with U.K.–based Denton, Wilde & Sapte that produced a 1,200-lawyer firm.
Because SNR Denton operates as a Swiss verein, the firms that combined to create it retained their independent financial status. But according to The American Lawyer‘s Global 100, SNR Denton’s first full year as a combined entity produced overall average partner profits of $700,000 in 2011. The Sonnenschein side of the firm reported $880,000 in average partner profits, so Portnoy heralded the merger as a success and “not a destination, but a part of the journey.”
The Journey Continues
In 2011 SNR Denton was one of several firms exploring merger possibilities with Dewey & LeBoeuf as that firm careened toward disaster. According to The Wall Street Journal, Sonnenschein’s leadership had named its proposed deal “A Phoenix Rises from the Ashes” and contemplated a full-scale merger that would join Dewey’s 1,000 attorneys with SNR Denton. Borrowed money would have financed the transaction—a tactic apparently drawn from the big law firm “lessons not learned” list.
Unexpected bad news may have saved SNR Denton from itself. According to the Journal, the deal was gaining momentum but cratered after Dewey itself revealed that Manhattan district attorney Cyrus Vance Jr. had opened a criminal investigation into the events surrounding the firm’s impending collapse.
Doubling Down on a Dubious Approach
The journey has now led to the proposed combination of SNR Denton, FMC, and Salans. If consummated, it would double the size of the current SNR Denton. If the transaction goes through, what results won’t be a partnership. Whether it becomes a profitable business venture for the participants is an open question.
To help answer that question, SNR Denton’s management got limited outside help. According to Portnoy and SNR Denton global chairman Joseph Andrew, “Branding and advertising advisers” recommended a single-name moniker, Dentons. (Do they know that Dr. Denton’s are children’s pajamas with feet?) But Andrew also noted that the firm used no strategic legal consultants or advisers in the process.
I don’t know if the other firms had advisers. Nor do I know if Salans had advisers in 1998 when it blazed a trail by becoming the first major law firm to complete a transatlantic merger by acquiring Christy & Viener. But that transaction didn’t turn out very well.
Maybe this time will be different. For the sake of many fine lawyers and even greater numbers of staff who are relying on management to chart a wise course for all three law firms, let’s hope so. Among the most important lessons to be taken from the fall of Dewey & LeBoeuf are these: The margin for leadership error is slim, and the consequences of missteps can be catastrophic.
Steven J. Harper is an adjunct professor at Northwestern University and author. He recently retired as a partner at Kirkland & Ellis, after 30 years in private practice. His blog about the legal profession, The Belly of the Beast, can be found at http://thebellyofthebeast.wordpress.com/. A version of the column above was first published on The Belly of the Beast.