Richard Crump and Glenn Legge of Holman Fenwick Willan LLP
Richard Crump and Glenn Legge of Holman Fenwick Willan LLP ()

Houston’s Legge, Farrow, Kimmitt, McGrath & Brown has agreed to merge with London-based Holman Fenwick Willan, one of the U.K.’s 30 largest law firms by revenue, according to leaders at both firms.

HFW is a 450-lawyer firm with leading shipping and aviation prac­tices. It will combine with civil litigation specialist Legge Farrow, a small Texas firm with about 20 lawyers, on Jan. 3, 2017.

The combined firm will have 170 partners and 17 offices across the U.K., Europe, the U.S., Latin America, the Middle East and Asia. It will operate as Holman Fenwick Willan globally, including in the United States.

HFW senior partner Richard Crump said that the firm had long sought to establish a presence in the U.S. to satisfy growing client demand. He called Houston an important market for the firm’s energy practice—one of HFW’s six core industry groups, alongside aerospace, commodities, construction, insurance and shipping.

“We looked at various U.S. cities and wanted to find the right firm that was similarly aligned in one or more of our key sectors,” Crump said. “It’s great to be famous for something, but we’re not just a shipping firm.”

Legge Farrow name partner Glenn Legge said that the merger will allow the Texas firm to “more effectively compete” for higher-value matters from existing multinational clients including Exxon Mobil Corp., oil field services company Schlumberger Ltd., and Brazilian state-owned oil giant Petróleo Brasileiro S.A.

“Right now, our sweet spot on litigation is $200 million or less under dispute—anything larger than that and [clients] will gravitate toward a larger firm,” Legge said. “We bring more to the table, in substance and appearance, by being part of a larger firm.” (Legge Farrow was named one of Texas Lawyer’s litigation departments of the year in 2014.)

Legge said that the firm has held advanced merger talks with three other international firms over the past four years—two based in the U.K. and one in the U.S.—and twice got to the point of exchanging financial information and signing nondisclosure agreements, before calling off the deals due to “differences” in approach. “It would not have worked if all the elements weren’t aligned, including the personalities,” he said.

Pooling Profits

Unusually, the deal with HFW will be structured as a conventional merger. Almost all recent cross-border law firm mergers have utilized the Swiss verein—a holding structure that allows members retain their existing forms. (The combinations that formed Dentons, DLA Piper, Hogan Lovells, King & Wood Mallesons, Norton Rose Fulbright and Squire Patton Boggs were all carried out via vereins.)

Vereins allow firms to sidestep issues around balancing disparate profitabilities and reconciling contrasting tax, accounting and partner compensation systems. Those issues can be particularly challenging in trans-Atlantic combinations, with the cash-based accounting systems and calendar fiscal year favored by most U.S. firms clashing with the accrual-based accounting setups and April 30 financial year end common among U.K. firms.

HFW’s Crump said that the firm never seriously considered using a verein structure. “I’m sure the vereins are very successful, but philosophically and culturally, we like to be one worldwide profit-sharing firm,” he said. “We see a big advantage in terms of cohesion, collaboration, client service and culture in being one firm.”

As a result of the merger, Legge Farrow will switch from its cash-based accounting and calendar fiscal year to adopt HFW’s accruals system and March 31 year end. Legge Farrow managing partner Gerard Kimmitt will remain in charge of the practice in Houston, and the U.S. firm will not initially have any positions on HFW’s 10-strong management and strategy boards, although Crump says that this will be reviewed in future.

The integration of the two firms’ IT, accounting and other systems is “on track” for the launch in January, Crump said. HFW’s oil and gas head Paul Dean, who led the merger talks, will spend one week per month in Houston for the next two years, while there will be a cross-management review every three months in order to assess progress and monitor the level of cross-selling between the two legacy practices.

HFW and Legge Farrow have maintained a close relationship since the pair appeared on opposite sides of a dispute relating to a collision between two ships in 2007. Legge said that HFW clinched the deal by inviting Legge Farrow partners to its annual partner conference, which was held last month in Barcelona.

“It was a great experience and was probably one of the things that really tipped us to going with this merger without reservation,” Legge said. “We were invited under the tent, and there was no guarded approach—everything was exceedingly open.”

Also key, Legge said, was an agreement that the merger wouldn’t upset Legge Farrow’s rate structure. “We didn’t want to go from Legge Farrow one day to HFW the next day, accompanied by a marked increase in rates, which we’ve seen when foreign firms have decided to create a greenfield presence in Houston,” he said. “That was a very big issue for us and is hugely important to our clients—particularly in the energy market, where depressed commodity prices have made the sector extremely cost-conscious.”

The Legge Farrow merger continues a period of considerable international expansion for HFW. The firm has over the past 18 months agreed to tie-ups with local firms in China, Kuwait, Lebanon, Saudi Arabia and Singapore.

Crump said that the firm will now seek to expand across the U.S.—probably through additional mergers. He cited New York, Los Angeles, San Francisco, Miami and Chicago as cities that have “significant relevance” to the firm’s clients.

“This is a statement of intent—we don’t want to stop at a presence in Houston,” Crump said. “It’s not some grandiose thing about wanting to be in 58,000 jurisdictions—it’s about looking at where clients are going and trying to remain relevant to them. It’s a key part of the firm’s strategy.”

HFW’s revenue grew 3 percent in the last fiscal year, to 143.1 million pounds ($177.8 million), while its average profits per equity partner rose 5 percent, to 519,000 pounds ($645,000).

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